LEAPFROGGING: THE KEY TO AFRICA’S DEVELOPMENT? FROM CONSTRAINTS TO INVESTMENT OPPORTUNITIES AGRICULTURE ICT EDUCATION GOVERNANCE ENERGY $ FINANCE Table of Contents Foreword.................................................................................................................................................... v Acknowledgments.................................................................................................................................... vii Abstract..................................................................................................................................................... ix Abbreviations and Acronyms.................................................................................................................... xi Executive Summary.................................................................................................................................xiii Enabling Leapfrogging in Africa............................................................................................................... xiii Innovation, Technology, and Development: Africa Can Leapfrog.............................................................. xv Agriculture................................................................................................................................................ xx Education............................................................................................................................................... xxv Energy................................................................................................................................................... xxix Finance................................................................................................................................................. xxxii Governance........................................................................................................................................ xxxviii Information and Communications Technologies....................................................................................... xli CHAPTER 1: Innovation and Development: Why Africa Needs to Leapfrog?............................................ 1 I.  Why Are Technology Adoption and Innovation Crucial for Africa’s Future?........................................1 II. What Do Economic Theory and History Say about Leapfrogging?........................................................3 What Does Economic Theory Say?...........................................................................................................3 What Does History Reveal about Technology and Development?.................................................................5 Technological Innovation Has No Border..................................................................................................8 Africa Leapfrogging through Innovation: Opportunities for Investments............................................10 III.  Endnotes...................................................................................................................................................15 References.................................................................................................................................................15 CHAPTER 2: Agriculture.......................................................................................................................... 19 I. The Need to Feed the Continent........................................................................................................19 II. Micro Jumps......................................................................................................................................21 Conditions for Agricultural Leapfrogging...........................................................................................24 III.  IV. Future Research.................................................................................................................................26 Endnotes...................................................................................................................................................28 References.................................................................................................................................................29 i ii Leapfrogging: The key to Africa’s Development? CHAPTER 3: Education............................................................................................................................ 35 I. Some Gains, but Falling Behind.........................................................................................................35 II. Leapfrogging School Enrollment, Educational Technology, and Outcomes........................................38 Establishing the Preconditions for Leapfrogging Education Outcomes and Skills...............................43 III.  IV. Future Research.................................................................................................................................46 Endnotes...................................................................................................................................................47 References.................................................................................................................................................47 CHAPTER 4: Energy................................................................................................................................. 53 I.  Abundant Resources but Insufficient Capacity...................................................................................53 II. Power Leaps.......................................................................................................................................56 III. Preconditions for Powering Africa......................................................................................................57 IV. Future Research.................................................................................................................................59 Endnotes...................................................................................................................................................60 References.................................................................................................................................................60 CHAPTER 5: Finance............................................................................................................................... 65 I. A Sector in Need of Change...............................................................................................................65 II. Leapfrogging Finance ........................................................................................................................68 Changes to Transform the Financial System in Africa.........................................................................72 III.  IV. Future Research.................................................................................................................................74 Endnotes...................................................................................................................................................76 References.................................................................................................................................................76 CHAPTER 6: Governance......................................................................................................................... 81 I.  Digital Technologies: The Foremost Change......................................................................................81 II. Experiences Implementing Innovation and Technology to Make Government More Effective............84 Prerequisites for Contextual Leapfrogging..........................................................................................86 III.  IV. Future Research.................................................................................................................................88 Endnotes...................................................................................................................................................89 References.................................................................................................................................................89 CHAPTER 7: Information and Communications Technologies............................................................... 95 I. The Mobile Revolution.......................................................................................................................95 II. Rapid Progress through Substitution and New Approaches................................................................96 Enhancing Conditions for Digital Leapfrogging..................................................................................99 III.  IV. Future Research...............................................................................................................................102 Endnotes.................................................................................................................................................104 References...............................................................................................................................................104 Concluding Remarks.............................................................................................................................. 107 Table of Contents iii LIST OF MAPS Map 1.1: Top 100 Innovation Clusters Worldwide......................................................................................2 Map 7.1: Undersea Fiber Optic Cables in Africa, 2009 and 2016..............................................................97 LIST OF FIGURES Figure ES.1: Evolution of per Capita GDP in Western Offshoots, Western Europe, Latin America, Asia, and Africa, 1000–2000.................................................................................................... xviii Figure ES.2: Technology Transfer, Capacity, and Absorption......................................................................... xx Figure ES.3: Top-Down and Bottom-Up Framework for Technology Diffusion............................................. xxi Figure 1.1:  Research and Development Expenditures and Economic Growth.................................................3 Figure 1.2:  Evolution of per Capita GDP in Western Offshoots, Western Europe, Latin America, Asia, and Africa, 1000–2000.........................................................................................................6 Figure 2.1:  Cereal Yield (kilograms per hectare)...........................................................................................19 Figure 2.2:  Average Size of Agricultural Holdings (hectares).........................................................................20 Figure 2.3:  ICT Applications in Agricultural Domains..................................................................................21 Figure 2.4: Maize Yields in Western Kenya...................................................................................................22 Figure 2.5: Cereal Production and Government Agricultural Expenditure, Côte d’ Ivoire.............................23 Figure 3.1: Educational Attainment (population ages 15 and over)...............................................................37 Figure 3.2: Schools with Electricity and Computers, 2012–15......................................................................38 Figure 3.3:  PISA 2012 Results Compared with GDP per Capita....................................................................39 Figure 3.4: Electrification and e-Learning Devices in Kenyan Primary Schools.............................................42 Figure 3.5: Leapfrogging with Equality in São Tomé and Príncipe................................................................43 Figure 4.1: Installed Generating Capacity.....................................................................................................53 Figure 4.2: Access to Electricity....................................................................................................................54 Figure 4.3: Primary Energy Consumption, Africa.........................................................................................55 Figure 4.4:  Lighting Africa’s Impact as of December 2016............................................................................56 Figure 5.1: Sub-Saharan Africa: Financial Development Index, 1980–2013..................................................66 Figure 6.1: Gross National Income per Capita and the Human Development Index, 2015...........................81 Figure 6.2: Ibrahim Index of African Governance, Top and Bottom Five Countries, 2015............................82 Figure 6.3: Corruption Perceptions Index, 2016...........................................................................................83 Figure 7.1: Telephones per 100 People.........................................................................................................97 Figure 7.2: Mobile Leapfrogging in South Africa...........................................................................................98 LIST OF TABLES Table 2.1: Summary of Productivity Outcomes from Case Studies..............................................................23 Table 3.1: School Enrollment (% of gross)..................................................................................................36 Table 5.1: Bank and Domestic Credit to the Private Sector..........................................................................67 LIST OF BOXES Box ES.1: Irrigation Project in Western Kenya.......................................................................................... xxv Box ES.2: Financial Options for Leapfrogging........................................................................................ xxxix iv Leapfrogging: The key to Africa’s Development? Box ES.3: Leapfrogging by China’s Digital Economy................................................................................. xlvi Box 2.1: Irrigation Project in Western Kenya............................................................................................24 Box 3.1: Key Transformations in the Chinese Education System ..............................................................40 Box 3.2:  Leveraging the Private Sector in Sub-Saharan Africa for TVET Skills Development.....................45 Box 5.1:  Financial Options for Leapfrogging.............................................................................................73 Box 7.1: Leapfrogging of China’s Digital Economy.................................................................................100 Foreword The purpose of this book is to explore ways to catalyze opportunities to increase investment in Africa. It a new generation of investment opportunities in Africa was first initiated by the China Development Bank, that leverage the ability of many countries to leapfrog with the full endorsement of the Chinese govern- into the future. The book was born from the view that ment, and won the firm support of the World Bank gradualism and business-as-usual will not provide the Group and several African countries. The first forum necessary solutions to the massive challenges facing focused on “Industrialization and results for Africa” the continent. Learning from economic history, the and aimed to think about different strategies that types of transformational and high-impact solutions would help to unlock the potential for sustainable that are needed to unlock Africa’s potential for acce- and inclusive growth, job creation and poverty reduc- lerated, sustained, and inclusive growth often have tion in Africa. The second forum under the theme been driven by innovation and widespread technology “Experience Sharing and Investment Promotion, adoption. Embracing and leveraging innovation and Building Complementarities and Shared Prosperity” building the momentum to leapfrog will be critical for addressed issues pertaining to agriculture and agri- Africa to create the jobs its youth so desperately need. business, infrastructure development, regional con- nectivity and renewable energy, skills development, Under the overarching theme of Leapfrogging, the and job creation. book discusses the following six topics: (a) agriculture, (b) education, (c) energy, (d) finance, (e) governance, The third IAF (IAF 2017) will bring together delega- and (f) information and communications technolo- tions from African countries, World Bank, China, gies. The book is predominantly forward looking as well as other development partners, and think and results oriented; it showcases specific projects, tanks, to share experiences and explore opportuni- success stories, and innovative ideas. The six topics ties for Leapfrogging through Innovation in Africa. While are the themes covered in the third Investing in Africa continuing to promote partnerships for accelerated Forum (IAF 2017). investment to build complementarities and shared prosperity between Africa and China will focus on The IAF was established in 2015, as a global plat- transformational and high-impact solutions driven by form for multilateral cooperation and promoting innovation and technology adoption. v Acknowledgments This book is the product of a collaboration between Fiscal Management), Tim Kelly (Lead ICT Policy the World Bank’s Africa Region and the China Specialist, Transport & ICT), and Samuel Munzele Development Bank. The book provides the analytical Maimbo (Practice Manager, Finance & Markets). The background to the Third Investing in Africa Forum in team also acknowledges Mark E. Cackler (Practice Dakar, September 25–27, 2017. Manager, Agriculture), Luis Benveniste (Director, Education), Lucio Monari (Director, Energy), James The book was prepared by a team led by Moussa P. Seward (Practice Manager, Finance and Markets), Blimpo and comprising Michael Minges, Wilfried A. Edward Olowo-Okere (Director, Governance), and Kouamé, Theophile Azomahou, Emmanuel Lartey, Boutheina Guermazi (Practice Manager, Transport Christelle Meniago, and Mapi Buitano. It was prepared & ICT) for their overall guidance and contributions. under the overall guidance of Albert G. Zeufack, Chief Finally, the team thanks the IAF organizing team, Economist for Africa. The team thanks staff from including Louise Cord (Country Director), Haleh Bridi Global Practices who provided inputs: Xiaoyan Liang (Director, AFREC), Shuilin Wang (Adviser, AFREC), (Lead Education Specialist, Education), S. M. Quamrul and Aneliya Muller (Consultant, Governance). Hasan (Senior Procurement Specialist, Governance), Jerome Bezzina (Senior Regulatory Economist, Transport & ICT), Arthur Foch (ICT Policy Specialist, About the team Transport & ICT), and Jennifer Gui (Senior ICT Policy Specialist, Transport & ICT). The team also thanks Liu Moussa P. Blimpo is an Economist in the Office Yong, Zhu Wenbin, Wu Zhifeng, Ji Feifeng, Wen Hao, of the Chief Economist for the Africa Region at the He Di, Xia Guanzhong, Ms. Zhang Chenxi at the China World Bank. Before this position, he was an Assistant Development Bank for their inputs, especially on the Professor of economics and international studies Chinese experiences over the past several decades. at the University of Oklahoma. His research covers broader development economics issues in Africa. He The team is grateful to the peer reviewers for their holds a PhD in economics from New York University. insightful comments, which helped to improve the over- all quality of the book. The reviewers included Vivien Michael Minges is an independent consultant for Foster (Lead Economist, Energy & Extractives), Andrea ICT policy, strategy, and regulatory issues. He has Mario Dall’Olio (Lead Financial Sector Economist, extensive experience with ICT development in Africa Finance & Markets), S. M. Quamrul Hasan (Senior as well as other developing regions, and has authored Procurement Specialist, Governance), Souleymane and co-authored several reports on the subject. Recent Coulibaly (Lead Economist, Macro Economics & projects include advising the Ethiopian government vii viii Leapfrogging: The key to Africa’s Development? on ICT policy, reviewing the impact of broadband Emmanuel Lartey is an Economist in the Office of the Internet in Rwanda and Senegal, and advising South Chief Economist for the Africa Region at the World Sudan on connectivity options. He holds a Master Bank. He is also an Associate Professor of Economics of Business Administration degree from George at the California State University, Fullerton. He has Washington University. published extensively on issues in macroeconomics and finance. He holds a PhD in economics from Wilfried A. Kouamé is an African fellow in the Boston College. Office of the Chief Economist for the Africa Region. Before that, he was an intern and consultant in the Christelle Meniago is an African fellow in the Office Macroeconomics and Fiscal Management GP at the of the Chief Economist for the Africa Region. She wor- World Bank. He is completing his PhD in develop- ked as an Economist covering Franc Zone countries ment economics at Sherbrooke University in Canada, for NKC African Economics, an Oxford Economics where he teaches economics courses at the graduate Company based in South Africa. She holds a PhD and undergraduate levels. in economics from North-West University in South Africa. Théophile Azomahou is a Professor of Economics at the University of Clermont Auvergne (CERDI), Mapi Buitano is a Senior Knowledge Management Professor of Development Economics at Maastricht Officer in the Office of the Chief Economist for the University (School of Business and Economics, SBE), Africa Region at the World Bank. She has extensive and Senior Research Fellow at the United Nations experience in coordinating the production and mana- University (UNU-MERIT). He has authored extensive ging analytical resources such as regional studies. She publications on economic growth, human capital, and holds a Master in International Relations from the innovation, among others. He holds a PhD from the Johns Hopkins University (United States). University of Strasbourg (France). Abstract Despite sustained economic growth over the past two exception. The one commonality among almost all decades, Sub-Saharan Africa faces massive challenges contemporary growth and development theories is and significant gaps in many development outcomes. that they consider technology and innovation as the Although poverty has been declining, a recent report primary drivers of economic growth. Historical expe- estimates that over two-fifths of the African population riences point to the same evidence. Major changes was poor in 2012. Nearly two-thirds of Africans do not in the history of countries like the United Kingdom, have electricity. Less than one quarter of African enter- the United States, or even recently developed and prises have loans or lines of credit; the corresponding emerging economies can be tightly linked to increased share among firms in non-African developing countries productivity through the adoption of better tech- is almost half. The use of formal financial services is con- nologies. The stream of inventions that began in the centrated among the richest 20 percent of the popula- 18th century in the United Kingdom, from the steam tion. Most African countries have made significant gains engine to electricity, the power loom, and machine in access to education, but learning remains weak. The tools, has dramatically changed the course of human agriculture sector, which employs a large share of the history. More recently, the phenomenal rise of South labor force, exhibits low productivity. Technological East Asian countries involved moving from low pro- change and levels, which are the drivers of productivity, ductivity agriculture (paddy fields) to manufacturing are much lower compared to other parts of the world. and more technology-intensive electric and electronic Even simple productivity-enhancing factors like the use components. Squarely focusing on uncovering invest- of fertilizers has remained flat for decades. ment opportunities that could reduce the distance to the technology frontier should therefore be the start- Africa’s large infrastructure, technology, and policy ing point in thinking about African development. gaps require disruptive solutions and thinking out- Equally important is the acknowledgment that Africa side of the box. Yet, development policies have often need not follow the same path and/or steps as other been primarily programmatic and mostly incremental. emerging regions. Vertiginous changes brought about This book argues that it is time to go back to basics by the digital revolution in the past 20 years (World of development, think big, and foster the environ- Development Report 2016) make leapfrogging (skip- ment for more innovation and technology adoption, ping steps, charting new paths) in Africa not only a to provide the chance for Africa to experience major possibility but a necessity. positive transformations. This is not a new idea; to the contrary, it is what economic theory and history While it has become customary in the development teach. There is no solid ground to treat Africa as an practice to highlight and quantify constraints to ix x Leapfrogging: The key to Africa’s Development? investing in Africa, this book argues that those con- Treating those constraints as investment opportuni- straints must be seen as and transformed into invest- ties, attracting the private sector, both domestic and ment opportunities. Several factors, such as skills, foreign, and creating a conducive environment for service delivery, access to finance, energy, to name the technological diffusion is precisely how Africa will few, are often pointed out as constraints to investment. harness innovation toward its prosperity. Abbreviations and Acronyms 4G fourth-generation eSWAp Electricity Sector Wide Approach ABF Asian Bond Fund FAO Food and Agriculture Organization ADIE Agence De l’Informatique de l’Etat FDI foreign direct investment AFI Alliance for Financial Inclusion GDP gross domestic product AGRA Alliance for a Green Revolution in GISDC Ghana Industrial Skills Development Africa Center AVU African Virtual University GTZ Gesellschaft für Technische Zusammenarbeit BRICS Brazil, the Russian Federation, India, China, and South Africa IAF Investing in Africa Forum CAADP Comprehensive Africa Agriculture ICT information and communications Development Programme technology CDB China Development Bank ID identification CEI Center for Education Innovations IEA International Energy Agency CENI Commission Électorale Nationale IFC International Finance Corporation Indépendante IIAG Ibrahim Index of African CFAF African Financial Community Franc Governance DLP Digital Learning Program ILO International Labour Organization EARP Electricity Access Rollout Program IMF International Monetary Fund EGDI United Nations E-Government IPP independent power project Development Index ITU International Telecommunication EIA U.S. Energy Information Union Administration K Sh Kenyan shillings EMEAP Executives’ Meeting of East Asia and KENET Kenya Education Network Pacific Central Banks xi xii Leapfrogging: The key to Africa’s Development? km kilometer SMEs small and medium-size enterprises KNBS Kenya National Bureau of Statistics t/ha tons per hectare MIF Mo Ibrahim Foundation TMG Telecommunications Management Group NMCP National Malaria Control Programme TVET technical and vocational education OECD Organisation for Economic and training Co-operation and Development UIS UNESCO Institute for Statistics OER open educational resources UNDESA United Nations Department of OHCHR Office of the United Nations High Economic and Social Affairs Commissioner for Human Rights UNDP United Nations Development PASS Program for Africa’s Seed Systems Programme PCIP Pacific Council for International UNESCO United Nations Educational, Policy Scientific and Cultural Organization PISA Program for International Student UNICEF United Nations Children’s Fund Assessment UN-OHRLLS United Nations Office of the PPP public-private partnership High Representative for the Least PwC PricewaterhouseCoopers Developed Countries R&D research and development USAID U.S. Agency for International R4 Rural Resilience Initiative Development RCDF Rural Communications Development WEDP Women Entrepreneurship Fund Development Project ROPL Rwanda Online Platform Limited WEF World Economic Forum SAVCA South African Private Equity and WFP World Food Programme Venture Capital Association WTO World Trade Organization SDGs Sustainable Development Goals Executive Summary Enabling leapfrogging in Africa in Africa. They demonstrate that with the right gov- ernance, attractive business climate, and proactive This book strives to identify the common factors policies, leapfrogging can and does occur across all behind successful leapfrogging experiences across sectors. Interestingly, various innovations, such as sectors. It also uncovers challenges that need to be mobile money and pay-as-you-go off-grid solar, were overcome to spur transformational changes on the spawned in Africa, and are spreading to other devel- continent. The following key messages emerge: oping regions. This makes Africa very attractive as a test-bed for technological innovation and adaption. Leapfrogging is enhanced through the Not all leapfrogging attempts are proper balance between top-down and successful bottom-up approaches African countries, as well as private investors, must be Africa needs both push and pull to transform. Top- willing to take risks and learn from failures, which are down initiatives are essential for creating an enabling a normal part of the innovation ecosystem. Risks can environment for large-scale investment, building major be mitigated in various ways, including the support infrastructure that triggers spillover effects, and boost- of development partners. A testing stage is essential ing knowledge to use and adapt technology. Bottom-up for refining and adapting technology to the variety of innovation is essential for successfully adapting tech- local conditions on the continent. nology to local needs and challenges. Generally, the Failure allows technology to be refined and improved. relationship has been lopsided, with more emphasis M-PESA began as effort to use mobile phones for on top-down adoption strategies. Better balance can be microfinance loans and only later evolved to mobile achieved through greater effort to boost adaptation by money. Similarly, Lighting Africa continually adapted investing in education and Research and Development the program based on the results of early field tri- (R&D) and enhancing the enabling environment for als in Ghana and Kenya, and found that on-the- innovation-driven entrepreneurship. ground engagement needed dedicated local specialist resources in addition to global expertise. Africa is not new to leapfrogging and is already leading the world in a number of Constraints that African economies face innovations are investment opportunities Despite the significant challenges the region faces, this Challenges are what motivates entrepreneurs to book presents evidence of leapfrogging experiences find solutions. African governments need to create xiii xiv Leapfrogging: The key to Africa’s Development? the right conditions to encourage innovators to mathematics, is fundamental to using, adapting, overcome constraints, and for the private sector to and triggering technological innovation that enables provide support and the necessary resources. The leapfrogging. Of all the sectors covered in this book, benefits for the private sector can be significant. In education has unique role in creating a conducive just a decade, M-PESA has become Safaricom’s larg- environment to attract private investment on the scale est driver of revenue growth, contributing to over needed. Governments should prioritize public spend- a quarter of its fiscal year 2017 revenue, with the ing for the education sector, given the potentially high mobile money service generating K Sh 55 billion returns it can generate as a lever for transformational (US$103 million).1 leapfrogging. Having the right regulatory environment is R&D is key to adapting technology to local crucial for enabling leapfrogging contexts A flexible regulatory environment enables innovation R&D is an important determinant of absorptive capac- by allowing new business models to be tested—regu- ity and technological progress. It enables technology to lation can then scale with the innovation. This was be adapted to local environments for rapid adoption. the case with M-PESA where, other than requiring Part of Africa’s lack of leapfrogging can be explained users to register, the Central Bank of Kenya imposed by low R&D expenditure: the lowest of any developing few restrictions during the mobile money service’s region and almost four times less than the world aver- early deployment. Flexibility is also required to create age. This report has identified several promising areas investment channels, such as delinking generation, meriting research. R&D is particularly essential for two transmission, and distribution, and opening energy sectors that have not experienced significant leapfrog- markets to private participation. ging—agriculture and education. Characterized by unique agroecology and small shareholdings, Africa’s agriculture sector has remained largely unaffected by Innovation must scale up to trigger the Green Revolution. R&D is needed to investigate leapfrogging how to increase productivity and sustainability, given these distinctive characteristics. R&D in itself is a good Technological innovation must be accessible in cost, investment that should be prioritized. A study from the skills required to use it, availability, and meet- India finds that investment in research, education, and ing a widespread need. Mobile money scaled rapidly roads was the most effective for agricultural growth because it filled the gap in formal banking, was simple and reducing poverty.2 to use, worked on inexpensive basic cell phones, and answered the need for a cheap and safe way for urban In education, outcomes remain constrained, meriting Kenyans to transfer money to family in rural areas. research into causes and solutions. Several educational technologies are being piloted across the continent. However, few have found scale despite the promise of Public investment should prioritize skill some, such as online learning, which could help alle- acquisition viate shortages of teachers. R&D is needed to explore the adaptive potential of these technologies, including Education, especially foundational skills acquisi- impact evaluations, to determine if and how they can tion as well as science, technology, engineering, and be scaled for Africa. Executive Summary xv Innovation, Technology, and contrary, it is what economic theory and history teach. Development: Africa Can Leapfrog There is no solid ground to treat Africa as an excep- tion. The one commonality among almost all contem- Why Are Technology Adoption and porary growth and development theories is that they Innovation Crucial for Africa’s Future? consider technology and innovation as the primary drivers of economic growth.6 Major changes over Despite sustained economic performance in the past the course of the history of countries like the United two decades, Sub-Saharan Africa region still faces enor- Kingdom, the United States, and recently developed mous challenges and significant gaps in many develop- and emerging economies can be tightly linked to ment outcomes. Although poverty has been declining, increasing productivity through the adoption of bet- a recent report estimates that over two-fifths of the ter technologies. The stream of inventions that began African population was poor in 2012.3 Infrastructure in the 18th century in the United Kingdom, from is a key component that helps in promoting industrial- the steam engine, to electricity, the power loom, and ization, raising incomes, accumulating human capital, machine tools, has dramatically changed the course and easing access to markets. However, the evidence of human history. If the theoretical foundations and shows that there are severe infrastructure gaps in experiences around the world concur on this point, Africa. There is a dire need to address these gaps, as it should also be the starting point in thinking about the current state of the region’s infrastructure is one African development. of the major reasons limiting private sector expansion and investment. What Do Economic Theory and History Say Sub-Saharan Africa ranks at the bottom of all devel- about Leapfrogging? oping regions in virtually all dimensions of infra- structure performance: quantity, quality, and access.4 What Does Economic Theory Say? The consequences of this poor infrastructure are There is one commonality in almost all contemporary enormous. Weak physical infrastructure not only growth and development theories: they all consider limits the growth of potential entrepreneurs, but technology and innovation as the most important also restricts private sector development and the drivers of economic growth. The role of technology region’s overall development. Many issues drive the and innovation and their subsequent adoption for infrastructure gap in Africa, ranging from a lack of economic growth and development is well estab- commitment, to sustainable tariffs on infrastructure lished.7 Research finds that the correlation between services, to poor performance of public utilities, with innovation (measured by the natural logarithm of weak management and political interference affect- total factor productivity) and the logarithm of out- ing the latter.5 put per worker for 98 countries in 1985 was 0.93. 8 This very high correlation suggests that, at the aggre- Despite these massive challenges and gaps, the devel- gate level, there is a large interdependence between opment approach in Africa has often been primarily the level of technology productivity and economic programmatic and mostly incremental. This book development in general. Similar results are found argues that it is time to go back to the foundation of for productivity growth. Technology and innovation development, think big, and enable the environment also represent the bulk of cross-country differences for innovation and technology adoption for Africa in productivity, compared with factor accumulation to have the opportunity to experience major posi- (physical and human capital), which accounts for tive transformations. This is not a new idea; on the only 10 percent.9 xvi Leapfrogging: The key to Africa’s Development?  volution of per Capita GDP FIGURE ES.1: E institutionalizing the processes of rapid technological in Western Offshoots, Western change once it had started. The list of sectors affected Europe, Latin America, Asia, by those inventions is extensive: power, metallurgy, and Africa, 1000–2000 mechanical engineering, textiles, chemicals, agricul- 30,000 ture, civil engineering, transport and communications, 25,000 and the military, to name some. 20,000 Figure ES.1 shows that, going back in time, the 15,000 income gap among countries becomes smaller, 10,000 emphasizing that the big divergence took place over the past 200 years or so. The evidence suggests that 5,000 there was only limited economic growth before the 0 18th century. The major catalyst for the momentous 1000 1500 1600 1700 1820 1870 1900 2000 Western offshoots Western Europe Latin America change was undeniably the Industrial Revolution and Asia Africa the incredible amount of technological developments that came along with it, which ultimately affected Source: The Maddison-Project, http://www.ggdc.net/maddison/ maddison-project/home.htm, 2013 version. many sectors. Note: GDP = Gross Domestic Product. Values in 1990 International Geary-Khamis dollars. Western Offshoots = Australia, Canada, New Zealand and the United States. Technological Breakthrough in One Sector Can Spill over into Others Technological spillover and innovation are well What Does History Reveal about Technology illustrated by the British textile industry during the and Development? Industrial Revolution. Not only did the textile indus- Very few events have dramatically changed the course try capitalize on the steam engine, it also stimulated of human history more than the stream of inventions the development of the chemical industry. The that began in the 18th century in the United Kingdom. Industrial Revolution bracketed the period in which This period of unprecedented technological advance- the processes of cotton manufacture in Britain were ments led to a real Industrial Revolution, first gradually transformed from a small-scale, domestic industry in Europe and later in North America. The effects of scattered over towns and villages, into a large-scale, this revolution have reverberated throughout the years concentrated, power-driven, mechanized, factory- across the globe, from Latin America to Asia and Africa. organized, urban industry. The most far-reaching The exact reasons for why this succession of break- innovation in cotton manufacture was the introduc- through inventions occurred are not straightforward tion of steam power to drive the carding machines and to explain, but perhaps were implicit in the events in power the looms and printing machines. The growth the buildup toward industrialization. of the textile industry brought a sudden increase of interest in the chemical industry, because a bottleneck Through a mix of good fortune and conscious in the production of textiles was the length of time the efforts, by the early 18th century, Britain came to process of natural bleaching techniques took, relying possess a unique combination of social needs and on sunlight, rain, sour milk, and urine. The modern social resources that offered the necessary precondi- chemical industry was virtually called into being to tions for commercially successful innovations and develop more rapid bleaching techniques for the a social system that was capable of sustaining and British cotton industry. Executive Summary xvii Similar spillovers took place across other sectors. markets. The availability of capital, navigable rivers The metallurgy and metal trades industry benefited and coastal waterways, and abundance of natural greatly from the power revolution. The agricultural resources facilitated the cheap extraction of energy, improvements of the 18th century had been pro- which largely contributed to fast industrialization. moted by people whose industrial and commercial Thanks to the large railway and highway systems, suc- interests made them willing to experiment with new cessively built in the 19th and 20th centuries, internal machines and processes to improve the productivity markets were enlarged and shipping and production of their estates. Another sector that heavily benefited costs were reduced. In addition to physical factors, from the new innovations of the 18th and 19th cen- nonmaterial factors, such as the legal system, facili- turies was civil engineering. Throughout this period, tated business operations and guaranteed contracts. for large engineering works, the heavy work of mov- Science also played an important role in supporting ing earth continued to depend on human labor orga- the national efforts of innovation and development. nized by building contractors. The use of gunpowder, Consequently, the United States was the birthplace of dynamite, and steam diggers helped to reduce this almost half of Britannica’s Greatest Inventions, spanning dependence toward the end of the 19th century; the items such as the airplane, Internet, microchip, laser, introduction of compressed air and hydraulic tools cell phone, refrigerator, e-mail, microwave, personal also contributed to the lightening of drudgery. The computer, air conditioning, assembly line, bar code, evolution of the railroad involved the combination of and much more. the steam locomotive and a permanent travel path of metal rails. Steamboats and ships also massively ben- efited from the steam engine, as it transformed marine Africa Leapfrogging: Opportunities for transport forever. Investments It can be inferred from theory and historical evidence Technological Innovation Has No Borders that Africa can leapfrog through innovation and tech- Although the industrial revolution started in the nology. Several recent examples from the region con- United Kingdom, the United States is unquestionably firm this. Leapfrogging is evidence of a quick jump the most technologically advanced nation. Despite in economic development and can include skipping having only around 4 percent of the world’s popula- stages. Examples of leapfrogging include a significant tion, the United States has almost 40 percent of the rise in access to electricity, a huge expansion in school world’s total wealth, and ranks among the top coun- enrollment, a notable improvement in financial access, tries in productivity. Although early technology may and a prominent spike in agricultural production. have been adopted from the Industrial Revolution, the process that propelled the United States to the Technology is a transformational driver of leapfrog- forefront of innovation was the result of more than ging. Historically, technology has been conceived in two centuries of investments in human and physical developed countries, and introduced to developing capital. nations through trade, foreign direct investment (FDI), and other channels such as diasporas, development Many factors contributed to the rapid industrialization agencies, and academia (figure ES.2). Technology in the United States: the availability of vast land and transfer is dependent on governance, advanced skills literate labor; absence of a landed aristocracy, unlike and R&D, financing, and policies for market entry. parts of Europe at the time; high esteem for entrepre- These factors have a strong influence on the adop- neurship; large diversity of climate; and robust free tion, adaptation, and absorption of technology in the xviii Leapfrogging: The key to Africa’s Development? FIGURE ES.2: Technology Transfer, Capacity, and Absorption Technological frontier Diaspora and Transmission channels Trade FDI other networks Policies to Technological Governance and the business climate • Create competencies absorption Basic technological literacy • Build infrastructure capacity • Foster an innovation-friendly Finance of innovative firms business climate Pro-active policies Technological Spillover effects Returns to scale Domestic absorption technological achievement Dynamic effects magnify technology transfer Source: World Bank, 2008, Global Economic Prospects: Technology Diffusion in the Developing World. economy. How quickly a technology can be absorbed due to greenfield wireless networks, and a prepaid in a country is affected by spillovers and scaling model that fit the region’s economic circumstances. potential. A wave of changes that began in the 1990s are affect- Several examples illustrate the technology diffusion ing the way technology is transferred, adapted, and model at work. In 2005, the Government of Ghana absorbed. New technologies, such as mobile phones changed the business climate for energy through pro- and the Internet, are not only diffusing more rapidly active policies such as separating generation, trans- than old ones, but have transformative spillover effects. mission, and distribution, and opening the market to Knowledge is spreading more quickly through the independent power producers (IPPs). This created the Internet and supplementing traditional channels of channel for attracting FDI from China for construc- technology transfer. New technologies are triggering tion of the Sunon Asogli Power Plant, the first power innovation in finance, epitomized through mobile plant project in Africa that was directly invested and money and digital currencies. Cloud computing and operated by a Chinese company. Another example the Internet of things extend computing power and is the rapid diffusion of mobile communication net- transmit data between sensors, enlarging the scope for works on the continent. This was facilitated in many innovation potential. African countries through proactive policies to allow private sector investment in the telecommunications New business models driven by digital entrepreneurs sector. Although fixed line telephone networks existed, are creating a new type of innovation ecosystem. The absorption of the technology was low despite huge cluster approach to innovation, epitomized by Silicon pent-up demand. The rapid absorption of mobile Valley, is shifting to support this change. Tech hubs was due to contextual adaptation triggering increas- are spreading, even in Africa where hundreds have ing returns to scale. This included solutions such as sprung up to support the digital entrepreneurship eco- overcoming limited grid electricity through the use of system by networking entrepreneurs, designers, and diesel-powered base stations, lower investment costs potential investors. Innovative ideas are increasingly Executive Summary xix funded by private equity and, notably, risk-tolerant Top-Down and Bottom-Up FIGURE ES.3:  venture capital. Risk and failure are accepted parts of Framework for Technology the ecosystem. Diffusion Top down Apprehension is growing about the side effects of tech- nology, particularly its environmental and sustainability Government; Business Private Development climates/pro-active impacts. Genetically modified seeds and pesticides, investment partners policies drivers of agricultural production, are coming under scrutiny. Climate change, largely triggered by fossil fuels used in power technologies, is affecting Africa’s signifi- cant hydropower potential and contributing to droughts Knowledge Leapfrogging Infrastructure Adaptation Adaption whose effects are magnified due to limited irrigation. Innovation These three influences—technology spillovers, entrepre- Entrepreneurs neur-driven innovation, and environmental and sustain- Bottom up ability concerns—are disruptive and affecting traditional ways technology is diffused, resulting in a bottom-up Source: World Bank. type of innovation.10 This bottom-up model is char- acterized by innovative adaptation, where an existing technology is leveraged to create a new product and with Instead, notable adaptive leapfrogging has emanated potential for rapid scaling. This innovative adaptation from the bottom up, often enabled by development has generated the most notable recent examples of not partners, and implemented by entrepreneurs or the only African leapfrogging, but also African innovation private sector operating in an entrepreneurial mode. that is spreading to other parts of the world (that is, Examples include the United Kingdom’s Department mobile money and pay-as-you-go off-grid solar). for International Development working with Vodafone in the case of mobile money, and the World Bank and The model of technology diffusion is evolving from top- International Finance Corporation (IFC) working with down to include bottom-up innovation with implica- a range of actors in the case of off-grid solar. The key tions for leapfrogging (figure ES.3). Governments are to leapfrogging from the bottom-up is unlocking scal- largely involved in the top-down model, through cre- ability through innovative business models. ating enabling business and knowledge (for example, education and R&D) environments and, along with Around the world, successful entrepreneurs have come the private sector, building large infrastructure such as up with solutions to problems that crop up around roads, power generators, and telecommunications net- them. In each problem, constraint, or challenge, works that are generally adopted with little if any adap- these innovators see opportunities. Some experiences, tation. These projects can be leapfrogging—rapidly such as mobile money and pay as you go solar, have adding to transport, energy, and telecommunications given hope to Africa that it can also be a dynamic capacity—with significant political will and invest- and innovative player. 11 While such examples offer ment. Other technologies often need to be adapted to encouragement, the promise of leapfrogging remains scale in Africa’s context of a largely rural population largely unfulfilled. In Africa, constraints are still often and low incomes. African governments have not gen- considered barriers rather than opportunities. Several erally had a successful record with adaptation, largely factors, like the level of skills, service delivery, and due to insufficient investment in education and R&D. poor infrastructure, are considered to be constraints xx Leapfrogging: The key to Africa’s Development? to attracting investment in productive sectors. To solve technology facilitates micropayments for pay-as-you- Africa’s challenges, this report argues that those con- go off-grid electricity. straints must be viewed as investment opportunities. Seen in that light, Africa will witness more innovation Following an overview of the six sectors and the toward prosperity. Once the constraints are turned challenges they face, examples of leapfrogging expe- into investment opportunities, there will be limitless riences, based on innovative practices and technol- win-win situations and an alignment between Africa’s ogy adoption, are illustrated from within and outside development requirements and investors’ quest for the region. Technological adoption, adaptation, and high returns. innovation scaling require the support of physical and institutional infrastructure.12 Herein lies the key for This report assesses the potential of technology adop- unlocking leapfrogging: For each sector, the discussion tion and innovation for six key sectors in the region: describes impediments to technology adoption and agriculture, education, energy, finance, governance, innovation and how they can be ameliorated. Finally, and information and communications technology areas of future research are identified for each sector. (ICT). Agriculture is Africa’s most important economic sector, employing the majority of its population and Technological change can take one of two forms: generating around one-third of its gross domestic Transfer of existing technologies to countries that product (GDP). Technological adoption and innova- have not yet adopted them, or addition of new tech- tion are highly dependent on the ability of education nological innovations. The policy implications can to impart skills for absorbing technology and devel- differ, because in one case it is about strengthening oping and applying innovation. The steam engine mechanisms and removing barriers for technology triggered the Industrial Revolution, and energy can transfer; in the other case, there is more of an impera- have a similar impact for transforming Africa’s eco- tive to promote homegrown innovation that is tailored nomic development. Financial inclusion is important to local conditions. for poverty alleviation. Efficient financial markets are critical for channeling investment into Africa’s infra- structure. Good governance is critical for political Agriculture stability and market efficiency, strongly influencing economic development. ICT is a cross-cutting, general The Need to Feed the Continent purpose technology that is increasingly the basis for triggering technological innovation around the world, More than 60 percent of Africa’s population lives in as well as in Africa. rural areas, making the region’s economy intrinsi- cally dependent on agriculture. Around a third of the The selected sectors exhibit spillover effects, creat- continent’s GDP is generated by the sector. However, ing dynamic synergies between them. ICT is the best agricultural productivity remains far below that of example, where digital technologies are creating leap- other regions. Over 90 percent of African agriculture frogging options in finance (mobile money), educa- depends on rainfall, with no irrigation. The tech- tion (online learning), agriculture (precision farming), niques used to cultivate the soil are behind those in energy (smart on- and off-grids), and governance other developing regions, lacking not only irrigation, (e-government). Education generates talent to imagine but also fertilizers, pesticides, and high-yield seeds. innovative solutions to the pressing challenges in many Agriculture in Africa also experiences problems such industries. Energy is needed for schools to enable as access to markets and financing. Despite its tremen- digital technologies for online learning. Financial dous agricultural potential, Africa is a net importer of Executive Summary xxi food, due to population growth, low and stagnating Agriculture forms part of a rural ecosystem where agricultural productivity, policy distortions, weak diversification opportunities can enhance sustain- institutions, and poor infrastructure.13 These barriers ability, increase incomes, and generate employment. are inhibiting the continent’s ability to achieve food Experience from other regions suggests that, as agricul- security. tural productivity rises, workers move to urban areas to seek jobs in other sectors. Given the low propor- There is a strong link between agricultural growth and tion of manufacturing and industry on the continent poverty reduction. The results of a regression analysis and challenges with rapidly growing urbanization, an covering 25 developing countries show that although alternative strategy is to enhance the rural economy. economic growth was an important contributor to a This includes widening the product mix of single- decrease in poverty, the sector mix of growth mattered crop farmers, expanding agriculture value chains, and substantially, with growth in agricultural incomes developing rural tourism. High-value, nontraditional being especially important.14 crops can supplement farmers’ income with signifi- cant potential for exports. Links between informal Due to the unique nature of Sub-Saharan Africa’s agri- value chains in rural areas and agribusiness generate culture sector—small shareholdings and distinctive jobs and opportunities for smallholder farmers. Rural agroecology—transformational changes will require tourism has significant diversification potential for the solutions beyond the so-called Asian Green Revolution rural economy. A survey among the indigenous popu- epitomized by the intensive application of high-yield lation living in the Ngorongoro Conservation Area in seeds, fertilizer, pesticides, and irrigation. Tanzania, where livestock is the primary economic activity, found that 39 percent of the population was Solutions for raising agricultural productivity in Africa also involved in tourism.16 The respondents reported are influenced by the shifting relationship between that tourism was a reliable source of income compared technology adoption and sustainable farming and the with other activities, and provided extra income for influence of interest groups. Several factors affect tech- food and education expenses. nology adoption, including the application of biologi- cal, chemical, and mechanical methods (that is, inputs Digital technologies, such as mobile phone applica- and assets); farmer knowledge; the agriculture value tions, sensors, satellites, radio-frequency identifica- chain; and technologies emerging from outside the tion, big data, and drones, have emerged with notable farm sector.15 Sustainable farming reflects the capacity effects on agriculture and rural livelihoods. Unlike to generate sufficient food in an economically efficient, direct inputs, such as seed, irrigation, fertilizers, or socially responsible, and environmentally sound way. pesticides, digital technologies raise agricultural pro- The aspects of the sustainability of technology depend ductivity and rural incomes through their effects in on whether it is at the farm level, within the agribusi- areas such as finance, crop and weather monitoring, ness sector, or from the lens of the national, regional, animal control, markets, and farmer education.17 The or global economy. Sustainability concerns are rising cost of digital technologies has dropped, making them in areas such as food-related illness, environmental increasingly feasible for African farming. An analysis impacts, and animal welfare. Governments face chal- of social enterprises operating across East Africa finds lenges aligning the private interests of agricultural that technology was a key enabler for entrepreneurs businesses with the public interest of small farms and involved in agriculture, lowering transaction costs and concerned citizens. Added to this mix is the growing enabling scale through the provision of information impact of climate change on weather patterns affecting and finance, collectivizing smallholders, and provid- Africa’s agriculture sector. ing market linkages.18 xxii Leapfrogging: The key to Africa’s Development? The Comprehensive Africa Agriculture Development five years in seed businesses, adopting principles Programme (CAADP) is Africa’s framework for agri- similar to startup ecosystems, by acting as an angel culture sector transformation. Ratified in 2003 in investor with investments in the range of $150,000, Maputo, Mozambique, the resulting declaration19 and working closely with entrepreneurs. called for at least 10 percent of government spending to be allocated to agriculture and rural development, Côte d’Ivoire has generated interest because its cereal and for sector growth to reach an annual average rate yields have increased, surpassing two metric tons per of 6 percent. Although most countries have increased hectare in 2010. This is perceived as evidence of a funding for agriculture since then, only five reached Green Revolution, given that, historically, yields of the CAADP target during 2008–14. Agriculture sec- more than two tons per hectare mark a threshold that tor growth in Africa increased at 3.8 percent per year is followed by sustained agricultural productivity.21 between 2003 and 2008. Several countries surpassed Cereal yields in the country increased by more than the 6 percent target during different periods, and 15 a third between 2007 and 2014. The rise coincided did so during 2008–14. with the end of civil war in the country. The resulting political stability expanded the area under cultiva- tion. Another factor was a large increase in govern- Micro Jumps ment spending, resulting from the 2010–15 National Agricultural Investment Program. Government agri- Agricultural leapfrogging examples are difficult to culture expenditures rose from 2 percent of total quantify at the macro level. This is because a notable spending in 2007, to a peak of 6 percent in 2014. improvement in productivity is often related to a specific This included funding for rural infrastructure and crop or technology (such as irrigation; see box ES.1) and farmer training programs, in addition to better seed not necessarily translated into nationwide agricultural and greater availability of fertilizer. Rice is a popular advances. Similarly, a rise in agricultural output may food item in the country, accounting for over half of not affect overall incomes in the rural sector (for exam- domestic cereal production. The rise in rice yields has ple, subsidies received by large farms). Bearing those made rural areas self-sufficient. limitations in mind, there are several examples of rapid productivity gains that have positively affected welfare. Other African countries have surpassed cereal yields of two metric tons. In two countries, Ethiopia and One area of notable success is the Alliance for a Green Rwanda, agricultural growth has been a main driver Revolution in Africa (AGRA) program for seeds, which of poverty reduction. Rwanda focused agricultural are particularly relevant, given their impact in raising production on staple crops to replace imports and agricultural productivity. AGRA has invested US$100 enhance food security. The government’s crop inten- million in African seed businesses, working with more sification program reduced seed and fertilizer costs for than 100 companies, representing about a third of farmers. Fertilizer use more than doubled, from 18 the market. They produced around 125,000 tons of percent in 2005–06, to 38 percent in 2010–11, and improved seed in 2015, up almost 400 percent from average sales of agricultural output rose from 18 to 25 2010. As a result, corn yields have doubled in the 18 percent. According to the World Bank, 45 percent of African countries in which AGRA works. According poverty reduction in Rwanda over that period can be to AGRA, the 57,000 tons of improved seed produced attributed directly to agriculture.22 in 2012 catalyzed yields of 5.7 million metric tons of additional food, enough to feed 34 million people.20 Cereal production tripled in Ethiopia between 2000 AGRA plans to invest US$500 million over the next and 2014. According to the World Bank, poverty in Executive Summary xxiii Box ES.1: Irrigation Project in Western Kenya Lack of irrigation is often cited as one of the shortcom- and the African Development Fund jointly funded the ings of African agriculture. Western Kenya is respond- project. Sino Hydro, a Chinese construction firm, was ing with a water conservancy and irrigation project contracted by the Ministry of Regional Development located in Homa Bay County beside Lake Victoria. The Authorities to build gravity-fed irrigation channels densely populated region, home to many small-scale along two rivers. Because of the project, farmland is cereal farmers, has unreliable rainfall, experiencing now under irrigation and there is a reliable source of frequent crop failures. The aims of the Kimira Oluch drinking water for local people and livestock. The irri- Small Holder Farm Improvement Project are to reduce gation scheme also offers an opportunity for farmers reliance on rainfall, improve agricultural productivity, to diversify production, by providing water for grain, decrease poverty, and improve the living standards fruit, and vegetable cultivation; fish breeding; and of small-scale farmers. The Government of Kenya other activities. Ethiopia has dropped by 33 percent since 2000, with Conditions for Agricultural Leapfrogging agricultural GDP growth of nearly 10 percent per year.23 An analysis of the cereal growth reveals that it Several areas require attention to create the necessary was mainly driven by acreage expansion rather than preconditions for agricultural leapfrogging in Africa. inputs.24 One exception was teff, a grain that is a main ingredient of the country’s popular injera bread. The Research and development is essential for develop- rapid spread of teff is attributed to a range of factors, ing and adapting new technologies, and positively including demonstration plots, seed loans, and train- associated with high returns.26 Although investment ing; informal networking to share information about in agricultural R&D tripled in China and India over production techniques was also important. the past 20 years, it increased by barely a fifth in Sub-Saharan Africa (and declined in about half the An analysis of sustainable agricultural processes countries in the region). In 2011, public and private across 20 African countries between the 1990s and agricultural investment in Sub-Saharan Africa was just 2000s finds productivity gains via two pathways.25 4 percent of the world total, down from 6.1 percent Multiplicative increases result from the use of new and three decades earlier.27 In small African countries, it improved varieties and improved management prac- is difficult to benefit from economies of scale in R&D, tices. Additive benefits accrue by diversifying into new making regional collaboration essential. International crops and livestock. These techniques and practices technology transfer is limited, due to the unique have resulted in increased yields. The analysis also finds African agroecological environment, placing even that the adoption of more than one practice produced more importance on national R&D efforts. Shortages of cumulative gains through synergies, resulting in higher skilled researchers are exacerbated by retirements and yields compared with single applications, such as just departures of experienced scientists; more resources fertilizer or irrigation. For instance, decision makers need to be devoted to capacity building. The volatile often view increased irrigation as a general panacea for nature of African funding for agricultural R&D is a boosting crop production in dry lands, but restoring reflection of limited government funding and depen- soil health while ensuring the effective use of rainwater dence on irregular development partner assistance. may be a more cost-effective and sustainable option. African governments need to design coherent R&D xxiv Leapfrogging: The key to Africa’s Development? programs and commit sufficient funding while ensur- Skills and education are needed at all levels, including ing that donor funding is aligned with strategies. policy making, research, the application of technol- ogy, and the farmers themselves. Although new digital Similar to other sectors, a growing number of advances technologies have emerged with demonstrated impacts in African agriculture are emerging from entrepre- for the rural sector, skills in government agriculture neurial innovation ecosystems. A new breed of young offices are often limited, affecting their application. “agripreneurs” is emerging, applying digital technolo- Extension agents need to be trained in the utilization gies and principles from startup ecosystems to enhance of new technologies, so they can transmit that knowl- agricultural processes. Local entrepreneurs have a bet- edge to farmers. There are also resource constraints for ter understanding of their rural context, giving them spreading knowledge, because there are insufficient an advantage over large multinationals, and they are numbers of agricultural extension agents and experi- more suited for surmounting challenges such as frag- enced technical staff members are nearing retirement. mented markets, lack of scale, illiteracy, and native These examples are largely applicable to many African traditions.28 This can be facilitated by an enabling countries, reinforcing the need to enhance capacity- environment that includes incubators, information building initiatives for technical experts. The knowl- exchange networks, and funding. Collaborative and edge capacity of farmers also needs to be raised, so they efficient links are also essential along the agriculture can leverage inputs, machinery, and digital technolo- supply chain, from farmers, to agribusinesses, to con- gies to enhance productivity. Ineffective user interfaces sumers. Policy makers should involve all these groups and lack of digital literacy are cited as reasons for the when developing sector strategies and plans. lack of success of some ICT in agriculture projects.30 Investment is needed in rural infrastructure, particularly Despite the importance of agriculture in the African transportation, electricity, telecommunications, and economy—18 percent of GDP in 2016—its potential irrigation. The impact of such investment can be signifi- remains unrealized due to chronic underinvestment. cant. One study finds that access to all-weather roads This is reflected by low productivity and character- reduces poverty by 6.9 percentage points.29 Lower costs ized by limited mechanization, non-optimum inputs, and innovative business models are spurring the take- and uneven application of new technologies. African up of off-grid electricity, providing power to hundreds governments spent only 3 percent of their budgets of thousands of rural homes in the past 18 months, but on agriculture in 2010, seven years after committing still a tip of the iceberg, given that half of Sub-Saharan to spend at least 10 percent in the CAADP Maputo Africa is without power. Irrigation is essential for crop Declaration. Investment per agricultural worker has production, yet less than 5 percent of cultivated land been flat or declining over the past 30 years. The in Africa is irrigated. Mobile infrastructure has spread region’s agriculture sector receives less than 5 percent the furthest, with the proportion of cell phones in many of lending from formal financial institutions, starving rural African households higher than the availability of agricultural businesses of capital. There are several electricity. This is largely due to private investment, a factors behind this, including the riskiness of small model that could be more widely applied in other infra- landholding farms, low returns, uncertain property structure sectors through licenses and public-private rights and land tenure, and inadequate policy and partnerships. Governments need to prioritize public regulatory frameworks. Nevertheless, there are indi- funding for agricultural infrastructure, recognizing the cations that funding is available from development trade-offs between where the investment is made (for partners if pro-growth conditions can be met. In addi- example, roads, irrigation, extension services, R&D, and tion, private sector initiatives for funding are growing, so forth) and economic growth and poverty reduction. including banks, private equity funds and venture Executive Summary xxv capital, impact investors, and microfinance institu- below the world average. This is a much bigger gap tions. The African countries that are most likely to to close than achieving near universal primary edu- benefit are those that prioritize agriculture, including cation, yet there are relatively few initiatives to deal a sound sector strategy and plan; have an inclusive with the expansion of secondary school coverage. The implementation process at the country level; offer region’s gross tertiary enrollment is just 8.6 percent; attractive investment incentives; and demonstrate some experts reckon it needs to be almost double that commitment to necessary reforms. to sustain current levels of economic development. There is an urgent need for radical change. Education Africa faces challenges in increasing the number, moti- vation, and quality of its teachers. Nearly 42 percent Some Gains, but Falling Behind of all instructional time in Kenya is lost because of teacher absenteeism; just over a third of public school It is well established that advances in education are teachers display mastery in the subjects they teach.34 associated with long-term improvements in economic The limitations of teachers will implicitly be reflected performance.31 Education links with economic devel- in learners’ performance. Across the region, only three opment in three broad ways:32 First, it improves the in four adults who completed six years of schooling skills of the workforce, leading to greater productivity. can read. There are wide differences among countries, Second, it influences the capacity of the economy to suggesting that in many, the quality of student learn- develop new ideas and technologies. Third, it serves as ing in primary school needs to be improved before a means of spreading the knowledge needed to apply increasing the school cycle. innovative ideas and new technologies. The composition of education attainment in Sub- Developing countries, especially those in Africa, Saharan Africa has changed substantially over the past are lagging behind in education outcomes. A recent 60 years, during which the share of the population ages analysis argues that there is a 100-year gap in educa- 15 and older who attended secondary school rose over tion levels between the developed and developing fivefold, from 5 to 26 percent. However, around a third worlds.33 At this pace, it will take more than 100 years of those ages 15 and older are still without education. for developing world students to catch up. Addressing Efforts need to be devoted to educating those who the massive challenges facing Africa’s education sec- never went to school or dropped out, and a culture tor will mean taking bold and innovative approaches. of lifelong learning needs to be instilled. Sub-Saharan Africa has made great strides in boost- Given these diagnostics, it is not overstated to affirm ing primary school attendance, and gross enrollment that Africa’s education system needs a rapid fix, in ratios are almost 100 percent. Much of the recent quantity and quality. Education in Africa also needs increase was driven by donor support to achieve the to leap forward to catch up with the transformation Millennium Development Goal of universal primary of labor markets. The changing nature of jobs and life education by 2015. It will be more difficult for the in the 21st century means that, although traditional region to achieve the new Sustainable Development ways of educating children may have worked in the Goal (SDG) of free universal secondary education by past, there is no guarantee that it will continue in the 2030. In 2014, Sub-Saharan Africa’s gross secondary future. The employment landscape is rapidly evolving. enrollment rate was 43 percent, 22 percentage points In many countries, the most in-demand occupations below the next lowest region and 34 percentage points did not exist a decade ago. As such, there is a pressing xxvi Leapfrogging: The key to Africa’s Development? need to transform Africa’s education system and equip standards for schools and professionalizing its teaching students with the right skills that will reflect the needs force, setting standards around content knowledge, of tomorrow’s labor market. skills, and behavior. Vietnam was an early adopter of standardized assessments of literacy and numeracy. One of the ways Africa’s education system can be The country also has an outward-looking approach transformed is through innovation and technology. of adapting the best practice in developed countries. The Internet is a cross-cutting enabler for education, providing unparalleled access to information, and In Bhutan, a project was launched to provide trainee facilitating connections to educational resources, vir- teachers with skills in ICT. The country has two tual labs, ideas, and people. It opens a way for expo- teacher education institutions; prior to 2000, neither nentially expanding the physical limits of the school, offered ICT training. Bhutan’s Ministry of Health and giving students and teachers access to online learning Education worked with a Singaporean foundation to resources from around the world. train teachers in integrating ICT into education, to close the gap between the low ICT skills among pupils There are a growing number of innovations and digital and the growing adoption of ICT technology in the interventions in education. The challenge for Africa will workplace. The project led to a tremendous increase be to know which are worth adopting and which can in ICT skills among teachers, who went from knowing scale. A major constraint the region faces is a lack of infra- nothing about computers to being able to design web structure to avail educational technologies. Electricity pages.36 The project benefited from being designed availability, essential as a prerequisite for computers and in two phases, so the lessons from the first could be Internet access, varies widely in African schools. There incorporated into the second. is also wide variation in school availability of digital technologies, such as Internet access and computers. China has long recognized that it must rapidly deliver skills that are crucial for its economic development. For almost four decades, China’s education system has Leapfrogging School Enrollment, experienced stages of exploration, innovation, reform, Educational Technology, and Outcomes and development. The Chinese experience in the trans- formation of its education system can be summarized in Examples from other regions and within Africa show five major thrusts. First, it modified models to accom- that rapid jumps in outcomes, teacher training, school modate economic changes. In the early days of eco- enrollment, development of online learning content, nomic reform, major industries were underdeveloped, and the availability of electricity and ICT in schools can and professional talent was in high demand. Instead of be achieved. An example is Vietnam’s level of progress sticking to the traditional education model, the central in education over the past 20 years. Despite having government invested in the development of skills in key the lowest GDP per capita among the countries that areas to accommodate the course of economic develop- participated in the Program for International Student ment. Second, it learned from other countries to make Assessment, Vietnam scored higher than the OECD higher education oriented to global demands. Experts average, outperformed many developed economies, from developed countries, such as the United Kingdom, and its score was more than 100 points greater than the France, Germany, the United States, and Japan, and average of other developing countries taking the test.35 the experiences of other countries in higher education The government recognized education as a national were introduced to accelerate reform of the tertiary priority and invested early in schools and teacher sector in China. Third, it coordinated market demand quality, developing and enforcing minimum quality and supply, restructuring and innovating the education Executive Summary xxvii industry. Fourth, it channeled more fiscal and social including fiber optic, mobile broadband, and satel- resources into education and increased investment in lite. In a separate program, all secondary schools rural areas. Fifth, it promoted educational investment are being provided with Internet access financed by as a prerequisite for economic development. Evidence the universal service fund of the Communications from China finds that education development is the Authority of Kenya. The Kenya Education Network, prerequisite for rapid economic development and not which was previously responsible for connectivity of vice versa. Education and economic development are the country’s higher education system, has seen its interdependent, which means that economic develop- mandate expanded to coordinate the various public ment provides resources for education and education and private sector initiatives for providing Internet provides intellectual support for economic develop- access in primary and secondary schools. More than ment. China’s experience indicates that investments 90,000 teachers have been trained in delivering digital in education and economic transformation should be learning; e-learning has been introduced in more than made simultaneously. 18,000 primary schools. The African Virtual University (AVU) has been at the São Tomé and Príncipe provides an example of rapidly forefront of online learning in the region. AVU con- leapfrogging secondary education enrollment to above nects 27 institutions across Anglophone, Francophone, world levels. The government developed a plan outlin- and Lusophone African countries, offering degree, ing strategies for the education sector, with one objec- diploma, and certificate programs delivered online, tive being 12 years of free education to all children. It face-to-face, and through blended modes. One of had already achieved universal primary enrollment, the AVU’s flagship projects was the launch of Open with a significant number of children then going on Educational Resources in 2011. AVU is the largest cre- to secondary. This was manifested through an increase ator of online higher education content in Africa, with of almost 50 percentage points in gross secondary more than 200 Open Educational Resources courses education enrollment between 2003 and 2016. This that are used on the continent and overseas. More than increase was stimulated by government prioritization 63,000 African students have benefited from the AVU of the education sector, establishing the preconditions since its inception. Distance education offers an attrac- through an increase in resources: the proportion of tive supplement for boosting Africa’s higher education public expenditure for education increased from 2.7 training, given the inability of universities in Africa to percent of GDP in 2002 to 8.8 percent by 2010. increase physical infrastructure rapidly. Kenya provides an example of how quickly electricity Establishing the Preconditions for and Internet access can be deployed, even to remote Leapfrogging Education Outcomes and rural schools, to enable online learning. As a precursor Skills to facilitating digital learning in public primary schools, the National Public Primary Schools Electrification Although education in Africa faces challenges, the leap- Project was launched in July 2013. Over the next three frogging examples present potential for the continent to years, more than 12,000 mainly rural primary schools improve outcomes and skills quickly. To enable rapid were connected to electricity using grid or off-grid educational transformation, the region needs to create solutions, raising the proportion of schools with elec- the necessary preconditions in several areas. tricity from 43 percent in 2013 to 95 percent by June 2016. Primary schools were also provided with Internet Partnerships are features in all the leapfrogging examples, access through a range of initiatives and technologies, including intergovernmental agreements such as the xxviii Leapfrogging: The key to Africa’s Development? AVU as well as bilateral cooperation, whether formalized imbalance between the demand for and supply of as projects or for one country to learn from other nations’ people with appropriate qualifications. To improve successful experiences in education. This points to the matchmaking between jobs and skills, the public and need for African governments and education ministries to private sectors need to work closely together. Labor collaborate more closely with each other and with other ministries need to seek the input of industry to fore- countries outside the region, to share scarce resources cast labor and occupation requirements. Ministries of and learn innovative educational practices and how to education need to draw up sector plans to ensure that apply them on a large scale. Another promising area is proper skills are developed to meet this demand. There private sector partnerships, whether for the introduction also needs to be emphasis on the sources of innovation, of technology or collaboration on industry skills training. by encouraging entrepreneurship through the creation The private sector could play a key role by investing in of digital hubs and close collaboration between higher education and infrastructure, facilitating digital learning education and startups. over the continent. This will entail reducing regulatory barriers that constrain private sector investment in the Good students require good teachers. More effort sector. Although this challenge must start with govern- is needed to train teachers and ensure that they are ments’ efforts to reform, there is much for the private appropriately allocated throughout the education sector to gain by investing in support of the public sector system. The success in the use of ICT in education in delivering skills. is contingent on teachers’ abilities and skills in inte- grating these technologies into the teaching process. ICT applications in education require digital equip- Therefore, if teachers are not provided with ICT skills, ment, Internet access, and regular and reliable electric- it is highly unlikely that digital interventions will be ity. There are many gaps in the region in the provision effective. of electricity, computers, and the Internet, as well as significant differences in availability across different lev- Innovative ideas and digital technologies will not els of education. Although governments need to invest scale and reach success without a robust education resources in digital infrastructure for schools, there sector policy, strategy, and plan. A clear government are various options for tapping funding. This includes vision of the education sector is required, identifying drawing on the resources of the private sector for school how it fits in with national goals, the initiatives for connectivity projects, such as leveraging the corporate the sector to achieve those goals, and the expected social responsibility programs of telecommunications outcomes. This provides clarity on how innovation operators and universal service funds to which tele- and digital technologies fit into education goals and communications operators contribute. Several African outcomes, and enhances the chances of scaling up countries have successfully adopted these strategies successful pilots while minimizing initiatives that for funding school ICT infrastructure. The cost of the are driven by donors or the private sector and stop Internet can be made more affordable for schools by when funding runs out. Strategies should be devel- subsidizing service charges, another practice adopted oped along a multi-stakeholder approach, including in many countries. African countries can also tap the among ministries, to reduce educational technology expertise of national education and research networks, silos. And the approach should include the inputs of which were initially created for higher education, to teachers, parents, students, donors, and the private assist with primary and secondary school connectivity. sector. Monitoring and evaluation are critical to track the implementation of digital technologies in an effort Labor markets are rapidly evolving and many new to reduce inequities, as well as to assess what works skills are in demand. In Africa, there is a considerable in improving outcomes. Executive Summary xxix A culture of ongoing skills development needs to be cooking and lighting in Africa. This has serious health, instilled across the continent. This is essential with safety, environmental, and socioeconomic consequences constantly evolving economies and demand for new and disproportionally impacts women and children. skills. Online learning platforms ease the task of con- More than 3.5 million Africans die yearly due to pollut- tinuous skill development and improvement. This ants or fires from liquid fuels for lighting and cooking.37 requires access to digital technologies and develop- ment of relevant local content. At the same time, over The weakness of the African energy sector constrains half of Africa’s adults never attended school or have economic growth and development. Electricity is a only a primary school education. Effort is needed to critical concern for businesses in Sub-Saharan Africa, reach this group, through formal and informal training and after access to finance, is listed as the second larg- initiatives, including teaching basic computer skills, est problem for enterprises in the region. Although so they are not left further behind. Sub-Saharan Africa is improving in some areas of its business environment, it is performing poorly in electricity. It takes an average of 130 days to get a Energy new electricity connection, and African consumers and businesses have the highest duration of outages Abundant Resources but Insufficient in the world.38 Relative electricity prices are by far the Capacity highest among all regions, equivalent to almost 4,000 percent of GDP per capita. Energy capacity and use in Africa are the lowest in the world. Although the continent’s power generation Although Sub-Saharan Africa faces an energy cri- capacity grew 32 percent between 2010 and 2016, at sis, it has abundant low-carbon and low-cost energy 175 gigawatts it is the lowest among all developing resources. The greatest potential energy source is water. regions. Although Africa accounts for 16 percent of Over 90 percent of Africa’s economically viable hydro- the world’s population, it only has 2.8 percent of the power potential, equivalent to about one-tenth of the power generation capacity. world total, is unexploited. Hydroelectric accounted for 13 percent of primary energy consumption in the region Household connections to the power grid are scarce in in 2016.39 The largest sources of energy consumption in Sub-Saharan Africa. Although the share is slowly rising, the region are oil and gas. Although most Sub-Saharan only 37 percent of the population had access to electric- African countries have thermal power stations, only ity in 2014, far less than any other developing region. As a few use local oil and gas resources. Instead, most a result, more than 600 million people in Sub-Saharan countries rely on imports, with a few exceptions (for Africa—almost two-thirds of the population—live with- example, Nigeria and Angola). The continent has abun- out electricity. Most of them are in rural areas where dant renewable energy resources, particularly solar and there is no grid electricity, and expansion is financially wind. Due to declining equipment costs, greater effi- and logistically impractical. Without radically increased ciency, and innovative business models, solar is rapidly energy production, the region will find it difficult to expanding as an attractive solution for providing off- achieve the SDGs for energy, including meeting the goal grid power in rural areas throughout the region. Solar that sets out to “ensure universal access to affordable, and wind renewables are the fastest-growing sources of reliable and modern energy services” by 2030. primary energy consumption on the continent. The lack of grid and off-grid electricity results in Africa needs huge investments to increase energy increased use of kerosene, candles, wood, and coal for production. Compared with other sectors, the power xxx Leapfrogging: The key to Africa’s Development? sector’s investment needs are high: they are 4.5 times Lighting Africa is a World Bank/IFC initiative that larger than in the ICT sector, and approximately was launched in Kenya in September 2007. Lighting double the investment needs in each of the water, Africa aimed at supporting the global lighting indus- sanitation, and transport sectors.40 It is estimated that try to catalyze a market for off-grid lighting products Sub-Saharan Africa needs to invest US$41 billion a tailored to the needs of African consumers. The pro- year to meet the needs of its power sector, equivalent gram’s mission was to make affordable, environmen- to over 6 percent of GDP.41 Although public utilities tally sustainable, durable, and safe lighting available to have traditionally been the largest source of power gen- the masses. The project design incorporated lessons eration in Sub-Saharan Africa, the investment required from earlier IFC and donor grant-based solar light- exceeds their funding capacity, making private invest- ing projects. Lighting Africa was innovative on two ment critical for expanding energy supplies. Private levels: From a market development perspective, the sector investment in the sector is increasingly chan- project transformed the solar lamp market in Kenya neled through IPPs, which have spread throughout the by making modern, good quality, and affordable light- continent and are present in 17 countries. ing products available to the very poor. It also dem- onstrated the commercial viability and sustainability Africa needs to follow a different trajectory to boost its of the approach to address the lighting needs of the energy sector. Four trends have emerged recently that base of the pyramid, in contrast to donor subsidized are noticeably increasing the potential for leapfrog- lending for the purchase of solar lamps. To achieve ging, based on the confluence of technological change this, Lighting Africa considered constraints along the that is dramatically (a) reducing the cost of renewable entire supply chain (including market intelligence; energy, (b) improving the efficiency of appliances, business development support to manufacturers and (c) increasing the intelligence of power infrastructure distributors; development of international quality through digital technologies, and (d) enabling decen- standards in product design, product quality test- tralized service provision. Combining these factors ing, and certification; and consumer education and with technology customization and innovative financ- financing). The pilot provided valuable lessons that ing can radically effect socio-technical transitions to were used to adapt the design and implementation energy solutions.42 Applying spatial-economic analysis of the initiative. to the intense changes that energy technologies have experienced can help identify the least-cost rural By 2016, the project had been deployed in 11 Sub- grid, mini-grid, and off-grid electrification options to Saharan African countries, affecting almost 21 million end energy poverty in Sub-Saharan Africa.43 This will people (4 percent of those with access to electricity). require complementary institutional, regulatory, and The project aims to reach 250 million more people financial innovation. by 2030 (equivalent to 42 percent of those without access to electricity). The project has also had impor- tant health, safety, and environmental benefits, such as Power Leaps reducing toxic fumes from kerosene lamps and paraf- fin, enabling children to study and do homework at Some African countries are experiencing significant night; and it saved money for households and small leaps in electricity production and access through a businesses by reducing kerosene purchases.44 The suc- regionwide initiative deploying off-grid electricity, an cess of Lighting Africa has spawned Lighting Global, to IPP in Ghana, and Rwanda’s accelerated electrification spread off-grid, solar-based electricity to other regions. initiatives. Leapfrogging was triggered by innovations Innovation has also been triggered by solar startups in technology, project design, and regulation. using mobile networks to manage generators, and Executive Summary xxxi mobile money for consumers to make micro payments. was reached a year early, rising to 20 percent by 2014. There are over half a dozen of these new solar utili- The second phase of EARP has an even more ambitious ties; they raised venture capital of more than US$200 target, aiming for electrification of 70 percent by 2018, million in 2016, up from US$19 million in 2013.45 using a combination of grid and off-grid solutions. A key leapfrogging condition has been the effective coor- In 2005, the Government of Ghana promulgated dination among stakeholders in planning, financing, an amendment to the Act governing the country’s and implementation.46 main electricity utility, the Volta River Authority. The amendment, made in the context of the govern- ment’s power sector reforms, largely restricted the Preconditions for Powering Africa Volta River Authority to the generation of electricity. This created the opening for attracting private sector With abundant energy resources, there is considerable investment into the energy sector through IPPs. Sunon potential for increasing power generation in Africa. Asogli Power Plant is one of the IPPs that was created More so than for other sectors, policy and regulatory by the reform. It was the first power plant project in challenges are the main impediments to leapfrogging. Africa that was directly invested and operated by a Enabling leapfrogging in the African energy sector will Chinese company, jointly financed by the China Africa require modernization of institutions, regulations, Development Fund and Shenzhen Energy Group. In and finance. 2010, the gas-fired generating units for phase I were put into commercial operation. Phase II started gener- Market reforms are crucial for creating an attractive ating power in March 2017, after construction of less environment for investment. This includes a sector than a year, the fastest ever for a similar size project regulatory agency for oversight and instilling a trans- in Africa. Sunon Asogli plays an important role in parent framework to attract investment. The regulator meeting Ghana’s power demands, with the potential needs to create an enabling competition environment to supply nearly a fifth of the country’s power needs. to establish routes for investment in the sector. The The US$560 million project was the seventh largest lack of funding for the power sector in Africa is often private sector investment in the country, demonstrat- because investment options are nonexistent rather ing that, with the right conditions, significant private than a shortage of capital. Market entry in the sector sector funding is available for infrastructure in Africa. can be facilitated through the structural separation of generation, transmission, and distribution. Another Electricity access in Rwanda grew over 300 percent aspect of competition relates to the procurement of between 2005 and 2014. The impressive growth is power projects. Competitive procurement increases tied to the adoption of a new Electricity Sector Wide transparency and lowers costs. Tenders or auctions Approach (eSWAp) by the government in 2009. can be complex to design compared with unsolicited eSWAp had several novel features, including joint or directly negotiated contracts; however, the latter coordination, a specific time bound target (16 percent tend to have more drawbacks over time (for example, access to electricity by 2013), a prospectus to attract higher prices, contract disputes, and opaqueness). investment, and strategies to reduce electricity costs through technical standards and geospatial analysis. Energy sector planning is critical to ensure that invest- eSWAp was operationalized through the Electricity ment sustains economic growth on the continent and Access Rollout Program (EARP), coordinated by the to factor in the consequences of climate change and the national electricity utility, and supported by several emerging potential of off-grid electricity. This requires development partners. The electrification rate target expertise in forecasting demand and determining xxxii Leapfrogging: The key to Africa’s Development? optimal supply options, within the time constraints for combinations, which should induce households to identifying projects, obtaining funding, and deploying save more and, in turn, stimulate investment and energy capacity. Ongoing updates are needed for plan- consequently higher economic growth. Third, a well- ning software to ensure that it is relevant for changing functioning financial system improves financial inter- demand and costs; the plans need to be revised on a reg- mediation, leading to a better allocation of resources ular basis to adjust to market conditions. Plans should across investment projects, as it provides economic be flexible, with multiple options, given that the African agents with a mechanism that allows for hedging, nations that have attracted the most investment into trading, and pooling risk, thereby raising the level of their energy sectors have a range of policies and struc- investments and economic growth. tures. Appropriate skills are needed for planning that cross a range of disciplines, such as engineering, law, Financial markets in Africa are considerably less meteorology, finance, economics, and data analytics. developed than elsewhere in the world, according to virtually all indicators of financial development. In Improving the financial sustainability of public utilities Sub-Saharan Africa, only 34 percent of those ages 15 in Sub-Saharan Africa is critical. This is particularly years and older have an account at a formal financial important for the success of private sector investment institution. Most African stock markets are quite thin, through IPPs since they rely on the “off-taker,” typi- with low levels of liquidity, and there is relatively low cally a public utility, to get the power transmitted and private equity penetration. distributed. Improvements are needed in areas such as governance, efficiency, and billing and collection. Better Currency markets in many Sub-Saharan African coun- collection, transparency, and dissemination are needed tries remain risky and are devoid of liquid, long-term for metrics measuring electric utility performance for investment instruments. Institutional investment in objective diagnosis of weaknesses. Tariff policy is critical local-currency debt in these countries tends to be not only for the viability of power utilities, but also for disadvantaged due to volatile exchange rates and the attracting new investment in the sector. The challenge risk of currency depreciation, and inadequate market is finding a model that balances affordability and access infrastructure, among others. Thus, international inves- with investment needs. If subsidies are required, they tors command greater returns to compensate for taking need to be well designed. Energy subsidies account for these risks, which often makes local-currency financing a significant portion of government resources in the prohibitively expensive. Consequently, governments region and often benefit the richest and create disincen- and private sector participants are constrained to bor- tives for maintenance and investment.47 row in foreign currencies from donors or through the capital markets, thereby exposing them to currency risk. Finance The African banking sector is characterized by high spreads, short tenure, and general risk aversion, and A Sector in Need of Change does not offer adequate products, with its lending activi- ties being concentrated in certain sectors. This culmi- It is widely recognized that access to finance is key for nates in scenarios where banking systems tend to have inclusive economic growth. First, an effective financial high levels of liquidity, but provide a small amount of system reduces the cost of intermediation, enhancing lending to small and medium-size enterprises (SMEs). the efficiency of transforming savings into investment. The absence of credit bureaus in most countries and Second, a developed financial system increases house- the concomitant effect on interest rates further hinders holds’ savings rates, by providing attractive risk-return SMEs from gaining access to finance. The lack of access Executive Summary xxxiii to credit for SMEs in Sub-Saharan Africa is further Innovation can provide opportunities for leapfrogging in reflected in the data on bank and domestic credit to financing and make capital more efficient, risk manage- the private sector. Based on data for 2015, Sub-Saharan ment more targeted, hedging better matched, and trading Africa trails other developing regions when considering less costly. It should also contribute to the unbundling both indicators of financial development. of risk, improved liquidity, broader access to capital, and optimal portfolio diversification. However, financial A key characteristic of the financial system in the innovation is not without dangers, as risk often drives region is the crowding-out of private sector financ- it and, in return, incentivizes at the level of the indi- ing by the public sector. Financially constrained vidual, structured financier or institution. The financial governments tend to offer high real interest rates on incentives of individuals, coupled with advancements in government bonds, which become more attractive to technology and financial engineering skills, can result in banks compared with providing credit to SMEs. This situations where new instruments outpace the existing crowding-out can be direct when the banking sector market and regulatory infrastructure. purchases a substantial share of bonds, or indirect when the government bond rates set the risk-free Nevertheless, there is an advantage for emerging mar- floor for private sector financing, which serves as a kets more generally, and particularly for Sub-Saharan disincentive to borrowing. Therefore, banking is very African countries in pursuing financial innovation, expensive in Africa, reflected by high interest spreads to trigger the transformation for leapfrogging in the and margins compared with other regions in the financial sector. Conventional financial services have world. Moreover, extremely low returns on deposits room to be more inclusive and innovation can offer have discouraged savings and limited the ability of viable services to those at the bottom of the pyramid. the banking sector to perform its intermediary role. Moreover, development of the formal financial services This has been a contributory factor in limiting the industry will expand access to finance, and innovation development of the financial system, which remains in the financial sector is very critical in this regard. narrow and illiquid, with limited access to long-term financing and, consequently, a hindrance to local debt financing. The financial systems also lack innovative Leapfrogging Finance financial instruments, especially those geared toward SMEs, which constitute most businesses in the region There has been a paradigm shift in the financial sector and tend to be confined to informal sector financing across the globe over the past decade, as the ecosystem because of inadequate financial services. was created for disruptive innovation. This includes country experiences in financial innovation, and its Several factors have served as impediments to the impact on financial inclusion and access to financing. development and efficiency of the financial system Access to finance has been made easy and affordable via in African countries. The institutions required for the use of mobile phones, the best example of financial building an efficient financial system, including leapfrogging in Africa. Other financial leapfrogging robust contractual and informational frameworks and examples include the relatively rapid take-up of risk incentive-compatible regulation and supervision, are index insurance in some African countries, including weak.48 The inadequacy of the regulatory framework in innovative payment and collateral options and lowering these countries has produced a concentrated banking the time to develop local currency denominated bonds. sector, very low intermediation rates, and inefficient collateral registry systems that further hinder access M-PESA, which was launched in 2007 by Safaricom to credit for businesses and individuals. in Kenya, ignited the mobile money revolution in xxxiv Leapfrogging: The key to Africa’s Development? Africa. The service allows customers to use a mobile sales in local currencies aimed at international as well phone to undertake deposit, withdrawal, and money as domestic investors, as well as domestic bond issues. transfer activities; pay bills; and purchase airtime. The World Bank has issued about US$8.5 billion in M-PESA’s initial innovation was leapfrogging the lack bonds in 19 currencies since 2011, including in several of financial services by exploiting existing telecom- African currencies, such as the Uganda shilling. Since munications infrastructure and network subscriptions 2002, IFC has issued bonds in 14 emerging market in Kenya, circumventing the expenses associated currencies around the world, including Rwanda. Given with storefronts and in-cash transactions. The service that a local currency bond issue takes several years to has expanded to include more advanced offerings, develop, IFC aims to reduce the time by standard- including ATM cash withdrawals, savings accounts, izing the process. It notes that in Africa: “...there is a on-site retail payments, mobile ticketing for events, great desire to catch up. Some countries are impatient and corporate banking accounts. M-PESA spawned enough they want to leapfrog—they don’t want to wait competing mobile money services. By 2016, 75 per- another 20 years to develop the market.”53 cent of the country’s adult population had a mobile money account, with transactions amounting to the Agricultural risk schemes have emerged to avoid situa- equivalent of 4.5 percent of annualized GDP per day.49 tions where farmers resort to selling off valuable assets, M-PESA was a disruptive innovation that transformed such as livestock and equipment, due to climatic banking in other countries, leading to an explosion events beyond their control. To address this challenge, of mobile money services across Africa, enhancing index-based risk financing hedging against specific financial inclusion. climate-related events has been developed. Data are tracked and payouts triggered by instances, such as a A responsive retail banking model with innovations significant drop in rainfall that deviates from histori- aimed at the African context has proven successful in cal averages and reaches a pre-set level. The first gov- Kenya, as the example of Equity Bank demonstrates. ernment-level, index-based insurance was piloted in Equity specializes in the provision of high-volume Ethiopia in 2006, spearheaded by the United Nations’ small loans at low interest rates. Micro-loans are avail- World Food Programme, with 26 weather stations able from as little as K Sh 500 (US$5.81).50 Other monitoring rainfall throughout the country daily. The innovations include waiving property-ownership experience led to the Rural Resilience Initiative (R4), requirements for opening an account, flexible forms which was launched by the World Food Programme of collateral including personal belongings, and trucks and Oxfam in 2011.54 R4 currently reaches more than with a satellite dish and a bank manager to go to places 43,000 farmers (about 200,000 people) in Ethiopia, where there were no branches. Equity also provides Senegal, Malawi, Zambia, and Kenya. The initiative free financial literacy programs. By 2011, Equity had has introduced several innovations for rural insur- provided US$750 million in loans to almost 300,000 ance, including allowing poor farmers to pay for crop SMEs.51 Consequently, Equity’s deposit accounts have insurance with their own labor and using the insurance increased to more than nine million, making it the policy as collateral for better credit terms. R4 found second largest bank in the country.52 that insured farmers in Ethiopia saved more than twice as much as those without any insurance, and invested The World Bank and IFC are issuing local currency more in inputs and assets. In Senegal, after two years bonds, aiming at strengthening domestic capital mar- of bad harvests, insured farmers were able to maintain kets by working with governments, regulators, capi- food security compared with others exposed to the tal market institutions, investors, and local financial same risks. R4 is aiming to reach 500,000 farmers in institutions. The instruments include offshore bond the region by 2020. Executive Summary xxxv The objective of the Women Entrepreneurship financing model supporting China’s urbanization and Development Project (WEDP) is to increase earnings digital inclusive finance aimed at providing financial and employment for women-owned enterprises in services to groups with limited financial options. Ethiopia. It created the first women entrepreneur– China Development Bank (CDB) has served as the focused line of credit in Ethiopia in 2013 and, as of the facilitator of development financing. CDB has devised end of 2015, more than 3,000 women entrepreneurs major development strategies for the economy through have taken loans, 64 percent of them first-time bor- medium- and long-term credits, investment, and other rowers. The WEDP microfinance institutions improved financial services. In its development financing role, their ability to appraise, which resulted in a decline in CDB has built a bridge between the government and collateral requirements from an average of 200 percent the market, through use of public credit to attract of the value of the loan to 125 percent. WEDP is rec- social funds for urbanization, economic transition, ognizing new forms of collateral, such as vehicles, per- and stable development. Development financing has sonal guarantees, and even business inventory. WEDP been a key instrument in China’s urbanization strategy. is introducing innovative credit technologies to lenders, For example, from 2004 to 2014, CDB issued loans such as psychometric tests, which can predict the ability amounting to 54 percent of the fixed asset investment of a borrower to repay a loan and reduce the need for of China’s public infrastructure, providing a capital collateral. This technology allows entrepreneurs who do guarantee for over half of city construction projects. not have collateral to take an interactive test on a tab- let computer, predicting the likelihood of repayment. Inclusive finance aims to provide services to groups with unfavorable economic circumstances and limited The Asian Bond Fund (ABF) is an example of a financial options. The ultimate objective is to facilitate regional initiative designed to protect economies the economic growth of enterprises and families, elimi- from damaging currency speculation while at the nate poverty and inequality, and incorporate all persons same time enhancing bond market development. needing financial services into the financial system. It is one of the first initiatives in the world where a Alipay, a third-party mobile and online payment plat- regional organization contributed financial resources form, is an example. Alipay was established in February to setting up a bond fund. The 11 members of the 2004. In 2010, China’s central bank issued licensing Executives’ Meeting of East Asia and Pacific Central regulations for third-party payment providers and a Banks (EMEAP) launched the ABF in June 2003. The separate set of guidelines for foreign-funded payment 11 central banks pooled US$1 billion to invest in dol- institutions. Alipay, which accounts for half of China’s lar bonds issued by the sovereign and quasi-sovereign nonbank online payment market, was restructured as a borrowers in the EMEAP countries.55 This was fol- domestic company to facilitate the regulatory approval lowed by ABF2, launched in 2005, which invested for the license. In the fourth quarter of 2016, Alipay had US$2 billion in local currency bonds. The bonds had over half the market share of China’s US$5.5 trillion the desired effect of drastically reducing currency mobile payment market, by far the largest in the world. speculation, and helped develop the bond and local Alipay provides an escrow service, where consumers currency bond markets in the region. Equally impor- can verify their satisfaction with purchased merchandise tant was the catalytic role of the ABF in collaboration before releasing money to the seller. Internationally, and building trust among the region’s central banks. more than 300 worldwide merchants use Alipay to sell directly to consumers in China. During the years following the 2008 global finan- cial crisis, two financial innovations were developed Alipay has progressed with several recent innovations in China. These solutions comprise a development in digital finance. Quick Payment, launched in 2011, xxxvi Leapfrogging: The key to Africa’s Development? aimed to solve the problem of the low success rate and due to inefficient registration systems. Reliable credit poor experience caused by complicated payment steps registries, effective cadaster systems, and effective land on online shopping platforms. Quick Payment intro- title transfers are critical for the performance of finan- duced a one-click solution, streamlining the process. cial intermediaries, particularly for assisting SMEs. Market response was favorable, and Quick Payment soon became a standard product for all payment insti- The banking system needs to be reorganized by open- tutions, including Tenpay and Chinabank Payments, ing the sector to competition, reviewing prudential significantly improving the degree of inclusive digital ratios, and putting in place innovative savings and finance in payments. Alipay also experimented with borrowing instruments adapted to local needs. A various technologies for offline small and micro busi- typical characteristic of the banking sector in African nesses without Point-of-Sale machines. It implemented countries is the high concentration ratio; at an aggre- a Quick Response solution, where merchants can scan gate level, the World Bank’s estimate of the average a customer’s payment details using a smartphone, market share of the three largest banks in Africa is 73 providing a convenient payment solution for many percent. This oligopolistic structure has negative con- small and micro businesses in rural areas. Alipay is also sequences, among which are high interest rate spreads providing payment platforms for other types of ser- that crowd out credit to the private sector by making vices, including in the medical field, where hundreds loans too costly. Mobilization of domestic resources is of institutions have access to Alipay. For example, vital to investment; the sustainable growth and banks, Alipay is connected to insurance providers in the city as the primary channels of financial intermediation, of Shenzhen, establishing the first medical insurance has a key role to play in this regard. Thus, the bank- mobile payment platform in the world. ing sector needs to be reformed to increase competi- tion, and to accommodate effectively the demand for credit from the public and the private sectors, so that Changes to Transform the Financial System savings and resources can be channeled toward pro- in Africa ductive investment. African countries will need to undertake several The gap between the informal and formal financial reforms to exploit the potential for leapfrogging. sectors needs to be bridged by formalizing microfi- Moreover, the leapfrogging experiences provide nance institutions, to help them scale up activities examples of policy measures that underpin innova- while developing financial products geared toward tion in and development of the financial system. The SMEs. The emergence of microfinance as a tool for experiences of leapfrogging in finance also serve as the financing the informal economy coincides with the basis for the options available to African countries to growing understanding between nongovernmental circumvent the challenges presented by underdevel- organizations, development experts, and policy mak- oped financial markets through various instruments ers that a significant proportion of the population (box ES.2). in developing countries has no access to financial services. Microfinance, which at first seemed to be a Regulatory bottlenecks can be tackled by establishing panacea, has demonstrated its limitations in scaling and enforcing laws and creating facilities that enable up operations. Thus, formal financial institutions need smoother credit flows. Investor confidence can be to adapt their products to local demand. Specifically, enhanced through the creation of credit bureaus that innovative financial tools that use technology, such oversee repayment records. One of the major impedi- as mobile banking, can also help leapfrog traditional ments to borrowing in Africa is the lack of collateral financial services and reach a larger population. Executive Summary xxxvii Box ES.2: Financial Options for Leapfrogging There are several areas of finance that present oppor- and affordable solutions. A tailored solution can be tunities for African countries to leapfrog: developed combining technology and experience based on lessons learned in other countries in (a) clear- Agriculture financing relates to how effectively such ing and settlement technology used to integrate financing can be aligned to the agricultural production markets; (b) implementation of trading platforms; cycle. Commodity collateralized finance uses com- (c) design of market-making systems and alternative modities or, more broadly, inventories as collateral trading arrangements, such as call markets; (d) design for lending. The use of digital technologies enhances of local currency indexes; and (e) participation of the tracking of commodities, and the emergence multilateral development banks as conveners in the of collateral management companies provides an development of investment products. additional level of comfort for financiers. Agriculture financing also links value chains to financial institu- Infrastructure finance can be leapfrogged by devel- tions.  As agriculture value chains in Africa become oping unconventional financing solutions that do better organized, opportunities increase to introduce not need to wait for full-fledged capital markets. For digital payments and collect information by anchor example, the World Bank is supporting an approach firms that could be used by providers of finance to in Kenya to mobilize long-term local institutional facilitate the efficient allocation of credit.  investors into infrastructure financing through alterna- tive financing vehicles, such as debt funds and hybrid- Agricultural index insurance provides protection financing featuring long-term institutional investors against climate shocks like drought, flooding, and and local bank co-financing. Another feature is a irregular rainfall. Because of the need for on-site farm World Bank guarantee, which enhances projects to visits, the traditional agriculture insurance market acceptable risk-return profiles. This financing solution largely fails to meet smallholder farmers’ demand for provides the flexibility needed in markets that are not affordable insurance. Satellite-based index insurance, yet fully functional, as is the case across Sub-Saharan when combined with mobile technology for registra- Africa, and leverages the benefits of a private-equity tion and claims settlement purposes, has huge poten- fund structure, but modified to accommodate fea- tial to meet the needs of these farmers. tures like those of fixed-income debt.  Through an intensive training process, when the pipeline proj- Financial inclusion can be enhanced via measures ects reach their financing phase, investors would be such as making government payments through elec- prepared and made to feel comfortable enough to tronic channels; establishing or accelerating universal invest in these infrastructure projects through a suit- coverage of national identification systems, which able investment vehicle to pool their funds. Credit facilitates opening bank accounts; and strengthening risk guarantees are also useful for long-term financ- education programs to deliver financial and digital ing, specifically when issuing local-currency debt. skills and literacy. Most importantly, through domestic debt issuance, countries can use and recycle their savings toward Local currency financing in Africa has been con- their investment needs rather than increase their strained by the lack of incentives, policy coordination, external debt. xxxviii Leapfrogging: The key to Africa’s Development? Governance Three impacts from the use of e-government include improving the internal workings of the public sector Digital Technologies: The Foremost Change and reducing costs; improving communications with the public as voters/stakeholders or as users of public The World Bank defines governance as “...the process services; and improving relationships between public through which state and nonstate actors interact to agencies and other institutions, such as other public design and implement policies within a given set of agencies, the private sector, and civil society institu- formal and informal rules that shape and are shaped by tions. Stakeholders need to understand the large gaps power.” Power is “the ability of groups and individuals between project design and the reality of the African to make others act in the interest of those groups and public sector. These “design-reality gaps” underlie individuals and to bring about specific outcomes.”56 failure. They arise due to the origin of e-government Good governance is critical for government and mar- concepts and designs in developed countries that are ket efficiency, and this strongly influences economic considerably different from Africa. Some best practices development. The United Nations Development may help to improve project success, but only if they Programme believes that governance and human are appropriate to the contexts of African countries. development are indivisible and good governance is a primary means of reducing poverty.57 The potential Corruption is a major, and some argue the greatest, of good governance to improve economic and social obstacle to social and economic development. Digital development outcomes is of utmost relevance to Sub- technologies can lead to more transparency, reduc- Saharan Africa, which has the lowest per capita income ing corruption among public officials. One study and human development of any region in the world. finds a connection between corruption and e-gov- ernment, with a statistically significant link between The foremost change affecting governance since 2000 the United Nations E-Government Development is advances in the use of ICT. The Internet, mobile Index (EGDI) and the Transparency International communications, and social networking have facili- Corruption Perception Index, suggesting that as the tated the transformation of public administration in use of e-government increases, corruption decreases.61 some countries and triggered a shift in the relation- The impact of e-government on reducing corruption ship between citizens and governments in others.58 is higher in developing countries than in developed Potential impacts include “enlarging the democratic ones. This is of particular significance for Sub-Saharan space, enhancing dialogue, facilitating inclusiveness, Africa, which ranks lowest in the perception of and by providing governments the tools to better corruption. perform their administrative and management func- tions.”59 However, the digital divide between Africa Digital technologies can improve registration processes and the rest of the world is a major barrier to the for citizens in areas such as births and passports. An applications of digital technologies for governance. important area is the national ID card. The lack of official identification prevents citizens from exercising A study points out that African governments have been their rights and isolates them socially and economi- using information technology for over four decades cally. For example, they may not have access to voting, and progress in the use of ICT for governance should legal action, receipt of government benefits, banking, be seen as evolutionary rather than revolutionary.60 and borrowing. Digital IDs, combined with the broad Nevertheless, the emergence of computer network- spread of mobile devices in developing nations, offers ing in the 1990s is a key innovation transforming the a transformative solution to the problem. Not only is processing and communication of government data. it a simple means for capturing official identification Executive Summary xxxix that can reach far more people, a digital ID creates operational in the public administration. Mauritius has innovative and efficient ways for governments and assisted several other African countries with imple- businesses to serve citizens. menting systems. A recent impetus has been more focus on services for citizens. Households across the country were surveyed to solicit their views to inform Experiences Implementing Innovation and the citizen-centric e-Government Strategy 2013–2017. Technology to Make Government More The strategy has already had an impact; by July 2017, Effective almost 70 e-services were available online, with 10 mobile applications also under development.64 African countries are implementing innovation and technology to make government more effective in Tanzania’s Electronic Government Agency is an inno- several ways. These include standardizing government vative example of a dedicated entity charged with data architectures and databases to make back-office handling government computerization for the coun- work flows more productive, connecting government try. Established in 2012, the Electronic Government offices to enhance information sharing and reduce Agency assists government departments with various costs, and providing information online or through activities, including designing websites so they have a mobile phones with various stages of interactivity. consistent look and feel, managing the government’s Ninety-two percent of the countries in Sub-Saharan domain name (.gov.tz), and helping agencies develop Africa have established at least a central portal pro- mobile applications. viding some information about the government and, in some cases, links to procedures and forms as well Rwanda has made notable use of its own resources, as some interactive services.62 Examples of notable assistance from the development community, and practices in innovation and leapfrogging in the appli- public-private partnerships (PPPs) to link government cation of digital technologies to government include offices, provide civil servants with digital skills, com- top-ranked Mauritius. The country has one of the puterize back-office processes, and deploy electronic oldest histories of applying computerization to the public services for citizens and businesses. The gov- public sector, as well as the continent’s best digital ernment used proceeds from the sale of its incumbent infrastructure. Other examples include Tanzania’s telecommunications operator to construct a national creation of a dedicated agency for electronic govern- fiber optic network that enabled connections of gov- ment and Rwanda’s success in connecting government ernment offices. In 2013, the government entered into agencies and deploying online public e-services. Kenya a 25-year PPP with Rwanda Online Platform Limited and Burkina Faso are notable for innovative deploy- for the provision of online government services. ment and use of open data; Côte d’Ivoire has had the Services are provided over the Irembo (Kinyarwanda largest improvement in governance indexes. for gate) platform, which is accessible via the web and mobile. More than 30 services are available, ranging According to the EGDI,63 Mauritius is top ranked in from birth certificates to driving tests, with plans to Africa by some margin. Its score is 23 percent above expand to more than 100. More than 200 service cen- the second highest-ranking country in the region, ters are spread throughout the nation for citizens to Tanzania. On reason is the long experience Mauritius learn how to use the system or have an intermediary has had with the computerization of government, dat- carry out the transaction for them. ing back to the 1990s. The country also has the best- developed ICT infrastructure in Africa. There are more Open data provides unstructured government than 60 major multi-user systems implemented and data available online to the public, to enhance xl Leapfrogging: The key to Africa’s Development? accountability and transparency. The 2010 Kenyan an independent authority responsible for preventing Constitutional revision included a new section call- and combating corruption and related offenses, and ing for citizens’ right to government information. This part of the Network for Integrity, whose members was one of the factors leading to the establishment in include similar institutions from 13 other countries. 2011 of the Kenya Open Data Initiative, the first in Sub-Saharan Africa. Several enhancements have been introduced since then, including a program providing Prerequisites for Contextual Leapfrogging training to journalists and civil society organizations interested in using open data. Code for Kenya assigns Most African governments have made some progress them computer experts and data analysts. Several tools in applying digital technologies within the public have been developed, such as Open Budget, replacing administration. This ranges from simply putting up unstructured budget data with an intuitive, interactive a few websites, to interactive processes for the deliv- tool. Data Lens is a new, visual way to explore data ery of services. Leapfrogging in the sense of catch- that makes it easy for citizens to get answers to their ing up with developed countries in the short run is questions in a visual, intuitive way without getting unlikely, given the resources and state of connectivity lost in the data. required. A contextual type of leapfrogging is neces- sary, where appropriate application of digital technol- Burkina Faso provides an innovative illustration of ogy is made available within the African environment. how open data was used to disseminate the results E-governance interventions also need to be cognizant of the 2015 presidential election, moving from of the region’s absorption capability, with grandiose unstructured, static data to real-time, formatted data. projects having a poor record compared with an evo- A consensus emerged that rapid dissemination of lutionary approach. Leapfrogging requires certain the election results would increase transparency and prerequisites to enable success. encourage confidence in the results. There was close collaboration between the country’s electoral commis- The main factor for enabling leapfrogging in the appli- sion and government, civil society, and international cation of digital technologies to governance is high-level partners. The electoral commission worked to secure government support. Political will and leadership are political support for rapid processing and publication a prerequisite for successful e-government. Without of the election results, which was unprecedented in strong government commitment, there will be bureau- Burkina Faso and almost unheard of in Sub-Saharan cratic resistance and a lack of coordination among Africa: just one day. This was achieved by publishing ministries. A common attribute of successful instances the results in real time, enabling citizens to access the of e-government in Africa is a strategy. This was found results instantly as they were validated on election day. to be the case for example in Mauritius and Tanzania. A strategy provides a concrete reference to goals and Côte d’Ivoire is a case where governance leapfrogging often a schedule for implementation. Strategies also is supported by statistical measurement. Over the past ensure that there is a whole-of-government approach decade, it was the most improved African country to using digital technologies, rather than individual in the Ibrahim Index of African Governance, with silos in ministries. This can be further strengthened its score rising 13 points between 2006 and 2015. through the establishment of an agency that is respon- Anti-corruption efforts are cited as one reason behind sible for e-government to coordinate with information improved business procedures. The High Authority for officers in all ministries. Sensitization and training are Good Governance was established in 2013 as part of also needed for successful implementation of e-gov- the government’s national anti-corruption plan. It is ernment initiatives. There is often limited expertise Executive Summary xli and a lack of incentive among government officials to be deployed that target cell phones. Government to use ICT. Therefore, e-government projects should services may require payment, so it is essential to make have a substantial training component to enhance the them truly interactive in collaboration with mobile potential for success. money providers. This also requires the adoption of laws that recognize the legality of electronic transac- In the absence of a strategy, and often where there is tions. Some wired broadband networks and support- bureaucratic resistance to e-government, a quick win ing infrastructure, such as data centers, are critical for approach can be considered. Quick wins are often connecting government offices and delivering cloud innovative and applied to leapfrogging in a particu- services. These can be encouraged through PPPs and lar area. They are particularly relevant where there is infrastructure sharing. Government data need to be not much digital expertise in government or it varies standardized through common architectures to reduce across ministries. Quick wins help to gain experi- duplication and facilitate sharing. ence that can then be used to develop bigger proj- ects. They provide proof of concept that could then attract deeper political buy-in and are often perceived Information and Communications as nonthreatening. There is often a thin line between Technologies bottom-up activities that can be scaled up as opposed to one-off interventions that fade when funding runs The Mobile Revolution out. Therefore, a good understanding is needed of how quick wins fit into a long-term strategy for sus- ICT is revolutionizing the world. Not only is ICT an tainable e-governance. important sector in its own right, it affects every other sector in the economy. As ICT evolves in speed, from Governments also need to have a citizen-centric narrowband to broadband, and in scope, from con- approach, especially when devising e-services. This necting just humans to machines, it is having even is particularly relevant in Africa, where most citizens greater effects. do not have access to the Internet. Citizens need to be involved in designing digital initiatives for governance. The rapid decline in the cost of digital technologies, Low-cost and non-Internet–based ICT tools should be particularly the Internet, has dramatically reduced included, because technical accessibility and afford- transaction costs. This benefits economic development ability and awareness campaigns should be conducted in three ways.66 First, the Internet helps overcome to let citizens know about the existence of and how information asymmetry by better linking sellers and to use the tools.65 The use of public centers to teach buyers. Second, lower transaction costs enabled by citizens how to use e-services or provide intermediary the Internet raise productivity in businesses. Third, services is also important. the Internet triggers innovation associated with the so-called “new economy” characterized by innovative Limited resources often deter governments from adopt- business models, the customization of services, and ing digital technologies, due to the high cost involved industry disruption. in connecting agencies and developing e-services. This can be ameliorated through progressive implemen- ICT and particularly mobile networks have grown tation over time as well as assistance from develop- rapidly in Africa. The speed of mobile evolution, ment agencies and the use of PPPs. Although Africa policy reforms, and the ways of financing investment lags behind in wired broadband deployment, there is are distinct among infrastructure sectors in Africa.67 widespread mobile phone availability; e-services need The availability and quality of service have increased xlii Leapfrogging: The key to Africa’s Development? and prices have gone down. Sector reform has driven Rapid Progress through Substitution and this radical change. Markets have been opened and New Approaches regulatory agencies created. This has resulted in com- petition spurring investment. Cell phones are used Africa has several noteworthy leapfrogging experi- for more than basic voice communications in Africa. ences in ICT. The region as a whole has experienced Mobile networks are generating innovation and boost- rapid growth of mobile networks and, more recently, ing incomes, with farmers using cell phones to check the deployment of a growing number of submarine market prices and traders accepting payments in cables. Some Sub-Saharan African countries stand out mobile money. However, there remains a large digital for mobile connectivity on par with developed nations, divide in Sub-Saharan Africa, due to the high costs of for the application of mobile communications in other deploying infrastructure in rural areas. sectors, and for innovative approaches to mobile broadband network deployment. Leapfrogging has The international development agenda stresses the often been stimulated from ICT serving as a substitute cross-cutting importance of ICT infrastructure for for inadequate alternatives (for example, the lack of achieving the SDGs. SDG Target 9c makes a call to: fixed telephone lines or limited formal banking ser- “significantly increase access to information and com- vices); in other cases, leapfrogging has been driven by munications technology and strive to provide universal a new approach, such as PPPs. and affordable access to the Internet in least developed countries by 2020.” Although the target refers spe- Mobile communications are the one ICT where Africa cifically to the least developed countries, it is highly has been closing the gap with the rest of the world. relevant for Africa, since 33 of the 47 least developed Although fixed telephone networks have been around countries are on the continent. since the early 1900s, access was always limited in Sub-Saharan Africa, at less than 2 percent of the popu- Although Sub-Saharan Africa has made impressive lation. Once the first mobile networks launched in the progress in expanding digital infrastructure over region in 1989, they grew rapidly. The gap between the past decade, there is still further to go to expand Sub-Saharan Africa and the rest of the world dropped broadband infrastructure, lower costs, and leverage from 99 percent in 1989 to 23 percent by 2015. The benefits more fully. Despite the steady gains, the reason for the popularity of mobile in Africa is largely region continues to lag all others in access to ICT. contextual: ineffective monopoly landline operators This is partly due to the link between per capita that did not pose a strong competitive threat to new income and ICT access. However, in many cases, mobile operators, lower investment costs of greenfield the market is not functioning as well as it could— wireless networks, huge pent-up demand due to a lack sometimes linked to exogenous factors such as poor of landlines, and the prepaid model that fit the region’s governance, lack of electricity, the high cost of doing economic circumstances. business, and a low level of digital skills. Other fac- tors are internal to the sector, including imperfect The rapid growth of submarine cables in Sub-Saharan competition, the lack of open access to key facilities, Africa is another area where there has been astounding and constrained spectrum allocation. Government leapfrogging. Before 2009, there was only one monop- strategies to narrow the digital gap between urban and oly-controlled cable on Africa’s west coast and only a rural areas through universal service funds have been handful of countries were connected. The deployment largely ineffective throughout the region. Solutions of cables on Africa’s east coast in 2009 led to a surge of are needed to these challenges to lift the region’s ICT undersea fiber optic networks. By 2016, all sea-facing sector to a higher level. African countries, except Eritrea and Guinea-Bissau, Executive Summary xliii were connected to submarine cables. Growth has been East Africa, providing international Internet capacity stimulated by several factors, including rising Internet for landlocked countries, including Ethiopia, Rwanda, use on the continent necessitating greater international Uganda, and soon South Sudan. Kenya is also a trend- capacity, a race to deploy between different cable setter for the application of mobile to the financial systems, rising demand for Internet capacity, and the sector. In 2007, mobile operator Safaricom launched involvement of development agencies, particularly in M-PESA, the first mobile money service in Africa. The a policy role of encouraging open, cost-based access lack of or the cost of formal banking quickly stimu- to submarine cables. lated take-up, as did a relaxed regulatory framework to allow the service to develop. The percentage of the South Africa is notable as one of the first countries population ages 15 and older with an account rose in Sub-Saharan Africa to introduce competition in from 42 percent in 2011 to 75 percent in 2014, one its mobile sector. Today, cell phones are as common of the highest rates of mobile money penetration in the in South Africa as they are in the United States, with world, strengthening financial inclusion in the coun- 89 percent of adults having a cell phone. Although try. Mobile money has spawned add-on applications, South Africa had an analogue mobile network in the such as links to savings and insurance and payment 1980s, it was essentially restricted to the well-off, for online shopping. due to high costs and low coverage. The launch of second-generation mobile and introduction of compe- Although Rwanda is a landlocked, least developed tition between the two private companies, MTN and country, this has not stood in the way of government Vodacom, in 1994, transformed the industry. Today, aspirations for the ICT sector. An innovative govern- there is widespread mobile broadband coverage, with ment-led initiative is the world’s first wholesale-retail a 3G signal reaching 99 percent of the population and model for a fourth-generation (4G) wireless network. 4G/LTE covering over 75 percent of the country’s A PPP was established in 2013 to build the network; it inhabitants, the highest levels in Sub-Saharan Africa acts as a wholesaler, selling capacity to retail Internet and significantly above world averages. Additional service providers. The 4G network was launched in competition through the market entry of Cell C in 2014, with the target of covering 95 percent of the 2001 and the incumbent fixed line operator Telkom in population by 2018. One reason for this model is 2010 has sustained growth. MTN and Vodacom have that the government wanted to accelerate the rollout also been instrumental in introducing cell phones to of superfast mobile technology. other Sub-Saharan African countries, with subsidiaries in 19 markets in the region. The experiences of China illustrate how the adoption of digital technologies has triggered economic and Kenya provides examples of ICT policy and technical social changes (box ES.3). innovations. Although the East African nation faces the sea, it long relied on expensive satellite connectivity, due to the lack of access to submarine cables. The gov- Enhancing Conditions for Digital ernment saw this as a major obstacle to the country’s Leapfrogging becoming an ICT hub. The government created a PPP to build an open access undersea fiber optic cable to ICT is an important sector in its own right and in cross the United Arab Emirates, which became operational cutting with impacts across other sectors. Leapfrogging in 2009. The country is now connected to three sub- within the sector is dependent on a proper regula- marine cables and this will double by the end of 2018. tory environment to stimulate competition, invest- Kenya has emerged as the leading bandwidth hub in ment, and innovation. Its impact on other sectors is xliv Leapfrogging: The key to Africa’s Development? Box ES.3: Leapfrogging by China’s Digital Economy The past two decades have witnessed the rapid devel- an example. Some 120,000 payment transactions opment of China’s Internet-based industry. Internet were processed per second during peak times. enterprises have made great progress in technical expertise, business models, and changes brought to IV The new economy represented by the Internet the economy and society, and even assumed a lead- has developed rapidly, brought about huge social ing position in the world in some respects. The main and economic benefits, and provided new energy experiences include the following: for China’s economic development. In fiscal year 2016, the total online sales on the Alibaba plat- I A robust e-commerce platform and network has form exceeded Y 3 trillion (US$4.5 billion), more been established. The development of credit, than the total sales of Walmart, historically the payment, and other new finance infrastructure world’s largest retailer. The 18-year development has been boosted to provide inclusive financial of Alibaba has surpassed the 54-year develop- services for individuals and small and micro busi- ment of Walmart. nesses. Financial technology enterprises have been supported to construct a global payment V With the transformation of urban development network, making online and mobile payment and evolution of smart cities, advanced e-govern- more convenient. China’s digital payment com- ment services have accelerated. Network infor- panies have become the largest in the world. mation technology has created a new pattern of Shopping websites have broken the constraints economic and social development, where the rela- of time and space, providing convenient low- tions between people and services, people and cost channels for linking buyers and sellers, and cities, people and society, people and resources, promoted the development of small enterprises. and people and the future are transformed. In 2015, Alipay launched the “City Service” smart- II Various platforms have been established to phone app, allowing users to carry out a range of enhance access to local content. The ratio of tasks related to urban living, including paying for Internet users using instant messaging has traffic tickets as well as utility bills, making medical reached 91 percent. Several online platforms have appointments, and accessing information about emerged for people to communicate and obtain traffic and public transportation. Another example information through the Internet and spawned a is “Sesame Credit,” where users of the Alipay self-media era, making the Internet a source for digital payment service generate real-time credit user-generated content and an important chan- scores; those with high scores accrue rewards, nel for transmission. such as avoiding car rental deposits or quick air- port security checks. Ant Forest, an app from Ant III In areas such as customer-oriented businesses, Financial, is a game that tracks users’ behavior to cloud computing, big data, and recognition tech- help them reduce their carbon footprint. Around nology, China’s Internet enterprises have reached a fifth of China’s population signed up for the app and, in some cases, even exceed the world’s top in nine months. The lifestyle changes the app level. The development and utilization of up-to- induced are estimated to have avoided 150,000 date technologies by financial enterprises have tons of carbon emissions.a been promoted for increasing efficiency, opti- mizing user experience, and maintaining market a Green Digital Finance Alliance. 2017. Scaling Citizen competitiveness. The annual online “11 Day Action on Climate: ANT Financial’s Efforts Towards a Digital Global Festival” held on November 11, 2016, is Finance Solution. Executive Summary xlv dependent on regulations as well as knowledge of allocation of scarce resources, such as frequencies, how to apply ICT to areas such as finance, agricul- numbers, and rights of way. ture, health, and so forth. Other necessary precondi- tions include a clear sector strategy, human capacity An ICT sector strategy is vital for providing guid- development, and innovation support. Once these ance and accountability and describing how digital preconditions are in place, there are several potential technologies fit in with overall national development technological options for leapfrogging, such as the plans. Ongoing, multi-year plans offer some predict- Internet of things, drones, new spectrum sources (for ability about the government’s direction for the sec- example, analog broadcasting and white space), and tor, providing reassurance for investment from the jumping straight to 4G and 5G networks. private sector. African countries need the right enabling framework, The strength of telecommunications operators, their including an independent sector regulator, compe- involvement in other countries, and scale make a dif- tition, and openness to private sector investment. ference. Governments should award major telecom- Competitive safeguards are needed to check anti- munications licenses based on a variety of criteria, competitive behavior such as cross-subsidization and including the operator’s experience, particularly in control over key bottleneck facilities. The price for other African countries; its proven technical expertise; exchanging traffic between different competing net- its financial depth; and its willingness to engage in a works should be transparent and cost-based. Universal significant way with the social and economic goals of service funds could be established to reduce the gulf the country. between ICT access in urban and rural areas, but need to be designed so they are transparent and effective. Skills across various domains are essential for Sub- Contributions to universal service funds combined Saharan Africa to exploit ICT opportunities success- with other sector-specific taxes are burdensome in fully. Governments need the right skills to create some countries, diverting money from investment and policies and regulate the sector. Technical skills are raising prices for consumers. Clear rules about licens- needed across sectors to develop ICT applications ing requirements for market entry are another prin- and services. Digital literacy is essential for citizens to ciple. This includes distinguishing between types of make productive use of the Internet. The transition licenses, when they are needed, and publicly available to broadband and the Internet is often constrained information about licensing criteria (that is, the period because it requires a higher level of skills than using required to reach a decision, terms and conditions, a mobile phone. and so forth). One challenge is pricing licenses cor- rectly to attract strong players while at the same time The need to stimulate innovation is critical for trigger- not charging so much as to discourage market entry. ing new uses for ICT that benefit the economy and Finally, there need to be efficient mechanisms for the society. Governments need to encourage ICT-based assignment of scarce resources. This is particularly disruptive innovation that challenges traditional indus- important in the African context, where most access tries. Thousands of digital entrepreneurial innovators is through wireless networks that require frequency have clustered in tech communities across the conti- spectrum. Transparent procedures are needed for the nent that merit support and incentives.68 xlvi Leapfrogging: The key to Africa’s Development? Endnotes 11 Juma, Calestous. 2017. “Leapfrogging Progress – The Misplaced Promise of Africa’s Mobile 1 Safaricom. 2017. 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E-Government and Corruption.” International 52 Central Bank of Kenya. 2017. Bank Supervision Journal of Digital Accounting Research. Annual Report . https://www.centralbank. 62 https://publicadministration.un.org/egovkb/en-us/ go.ke/uploads/banking_sector_annual_ Resources/Country-URLs. reports/323855712_2016%20BSD%20 63 The EGDI assesses national websites and how ANNUAL%20REPORT%20V5.pdf. e-government policies and strategies are applied Executive Summary xlix in general and in specific sectors for delivery of 66 World Bank. 2016. World Development essential services. The results are tabulated and Report 2016: Digital Dividends . https://doi. combined with a set of indicators embodying a org/10.1596/978-1-4648-0671-1. country’s capacity to participate in the informa- 67 Williams, Mark, Rebecca Mayer, and Michael tion society, without which e-government devel- Minges. 2011. Africa’s ICT Infrastructure: Building opment efforts are of limited immediate use. See: on the Mobile Revolution. Washington, DC: World United Nations. 2016. E-Government Survey 2016: Bank. E-Government in Support of Sustainable Development. 68 Firestone, Rachel, and Tim Kelly. 2016. “The 64 Republic of Mauritius. 2017. “ICT- New e-Services Importance of Mapping Tech Hubs in Africa, Launched for Prompt and Effective Public Service and Beyond.” Information and Communications for Delivery.” News, July 17. Development (IC4D) Blog, August 24. 65 iHub Research. 2014. ICT and Governance in East Africa. 1 Innovation and Development: Why Africa Needs to Leapfrog? Why Are Technology Adoption and I.  surface area in 2014, compared with 0.016 in South Innovation Crucial for Africa’s Asia. Similarly, Sub-Saharan Africa is still the weak- Future? est performing region in road quality, with a score of 3.3 in 2015, compared with 4.5 for East Asia and Despite sustained economic performance in the past the Pacific. The consequences of this poor infrastruc- two decades, the Africa region still faces enormous ture are enormous. Weak physical infrastructure not challenges and significant gaps on many development only limits the growth of potential entrepreneurs, outcomes. A recent World Bank report estimates that but also restricts private sector development and the around 43 percent of the African population was region’s overall development. Many issues drive the still living in extreme poverty in 2012 (World Bank infrastructure gap in Africa, ranging from a lack of 2016). Additionally, the region’s infrastructure is commitment to sustainable tariffs on infrastructure underdeveloped. Infrastructure is a key component services, such as electric power, transport, and water, that helps in promoting industrialization, raising to poor performance of public utilities, with the lat- incomes, accumulating human capital, and easing ter being affected by weak management and political access to markets. However, evidence shows that interference (World Bank 2017b). there are severe infrastructure gaps in Africa. There is a dire need to address these gaps, as the cur- Moreover, nearly two-thirds of Africans lack of rent state of the region’s infrastructure is one of the access to electricity; and an even larger share relies major reasons limiting private sector expansion and on biomass as the main fuel for cooking (World investment. Bank 2017b). In access to finance, only 23.1 percent of African enterprises have loans or lines of credit; According to the latest Africa’s Pulse, Sub-Saharan the corresponding share among firms in non-African Africa ranks at the bottom of all developing regions developing countries is 46.1 percent (Beck et al. in virtually all dimensions of infrastructure per- 2011). In the Africa region, the use of formal finan- formance, which are quantity, quality, and access cial services is concentrated among the richest 20 (World Bank 2017a). In the quantity of transport percent of the population (Beck et al. 2011). Most infrastructure, it is reported that Sub-Saharan Africa countries in the region have made significant gains stands as the only region where road density (mea- in access to education, but learning remains poor. sured as kilometers (km) per square km of surface The agriculture sector, which employs a significant area) has deteriorated over the past 20 years. The share of the labor force, exhibits low productivity. report estimates that Sub-Saharan Africa recorded a These large gaps require disruptive solutions and road density network of 0.002 km per square km of out-of-the-box thinking. 1 2 Leapfrogging: The key to Africa’s Development? MAP 1.1: Top 100 Innovation Clusters Worldwide Source: Dutta, Lanvin, and Wunsch-Vincent 2017. The level of innovation in Africa is low, as highlighted innovation activities often tend to be geographically in the latest evidence provided by the Global Innovation concentrated in specific clusters linked to a single Index 2017 Report (Dutta, Lanvin, and Wunsch- city or a set of neighboring cities. Adopting a cluster Vincent 2017). Since 2012, the increase in innovation perspective opens the door to a better understand- achievers from the continent has been steady. On a ing of the determinants of innovation performance scale of 100 and in a sample of 127 economies, the that do not necessarily operate at the country level. top African country in 2017, South Africa, ranks 57th, Clusters of inventive activities are often identified with a Global Innovation Index score of 35.80. South and classified based on the number of patent filings. Africa is followed by Kenya (60th), Mauritius (64th), Patent data offer rich information on the location Botswana (89th), Botswana (89th), Tanzania (96th), of innovative activity. Map 1.1 displays the top 100 Namibia(97th), Rwanda (99th), and Senegal (100th). major research and innovation clusters in the world in Most of the continent’s innovation achievers performed 2017. As shown on the map, most of the innovation better in institutions, infrastructure, and market sophis- activities take place in Western Europe and the United tication. However, although the region’s relatively high States. The distribution of clusters across countries is performance in innovation signals strengths, innovation highly uneven: the United States has 31; Germany, levels across countries in the region still show large dis- 12; Japan, 8; China, 7; and France, 5. The top 100 parities. Therefore, it is crucial for the less-developed do not include any cluster from Latin America and economies of the continent to continue to improve their the Caribbean, Sub-Saharan Africa, Northern Africa, innovation performance, to maintain the momentum or Western Asia. of the region’s innovation standings. Despite these massive challenges and gaps, the devel- Looking at innovation from other perspectives (mainly opment approach in Africa has often been primarily clusters), Africa is very far behind. The region’s programmatic and mostly incremental. Innovation and Development: Why Africa Needs to Leapfrog? 3 FIGURE 1.1:  Research and Development What Do Economic Theory and History II.  Expenditures and Economic Say about Leapfrogging? Growth (%) 10 What Does Economic Theory Say? 8 There is one commonality in almost all contemporary 6 growth and development theories: they all consider technology and innovation as the most important driv- 4 ers of economic growth (Aghion and Howitt 2009). 2 The role of technology and innovation and their subse- quent adoption for economic growth and development 0 is well established (Romer 1990; Aghion and Howitt 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP growth Business R&D Total R&D 1992). The correlation between research and develop- ment expenditures and economic growth is robust, as Source: Dutta, Lanvin, and Wunsch-Vincent 2017. Note: GDP = gross domestic product; R&D = research and develop- illustrated in figure 1.1 for a sample of 127 countries ment. between 2005 and 2015. Klenow and Rodriguez-Clare (1997) find that the correlation between innovation (measured by the natural logarithm of total factor This book argues that it is time to go back to the productivity) and the logarithm of output per worker foundation of development, think big, and enable for 98 countries in 1985 was 0.93. This very high cor- the environment for more innovation and technol- relation suggests that, at the aggregate level, there is a ogy adoption for Africa to have the opportunity to large interdependence between the level of technology/ experience major positive transformations. This is productivity and economic development in general not a new idea; to the contrary, it is what economic (Comin and Hobijn 2004). Similar results are found theory and history teach. There is no solid ground for productivity growth. Klenow and Rodriguez-Clare to treat Africa as an exception. The one commonality (1997), as well as Easterly and Levine (2001), sug- among almost all contemporary growth and devel- gest that the cross-country correlation between total opment theories is that they all consider technology factor productivity growth and the growth of output and innovation as the primary drivers of economic per worker is about 0.9. Technology and innovation growth (Aghion and Howitt 2009). Historical experi- also represent the bulk of cross-country differences ences point to the same evidence. Major changes over in productivity, compared with factor accumulation the course of the history of countries like the United (physical and human capital), which accounts for only Kingdom, the United States, or even recently devel- 10 percent (Klenow and Rodriguez-Clare 1997; Clark oped and emerging economies can be tightly linked to and Feenstra 2003). increasing productivity through the adoption of bet- ter technologies. The stream of inventions that began The neoclassical models, for example, are in many in the 18th century in the United Kingdom, from ways capital-based theories of economic growth. They the steam engine, to electricity, the power loom, and focus more on modeling the accumulation of physical machine tools has dramatically changed the course and human capital. However, these theories emphasize of human history. If the theoretical foundations and the crucial importance of technology. For instance, experiences around the world concur on this point, they do not generate economic growth in the absence it should also be the starting point in thinking about of technological progress, and productivity differences African development. help to explain why some countries are rich while 4 Leapfrogging: The key to Africa’s Development? others are poor. In this way, neoclassical growth theory lump together physical and human capital, whose highlights its own shortcoming: although technology accumulation is studied by neoclassical theory, with is a central component of the neoclassical theory, it is the intellectual capital that is accumulated when tech- left unmodeled. Technological improvements arrive nological progress is made. When this aggregate of exogenously at a constant rate, and differences in tech- shades of capital is accumulated, there is no reason to nologies across economies are unexplained. think that diminishing returns will drag the marginal product of capital down to zero, because part of that Four leading paradigms explain economic growth: accumulation is the very technological progress that is the Solow model, the AK model, the product-variety needed to counteract diminishing returns. According model, and the Schumpeterian model. to the AK paradigm, the way to sustain high growth rates is to save a large fraction of the national income, some of which will find its way into financing a higher Solow Model rate of technological progress and thus result in faster Known also as the neoclassical growth model, the Solow growth. Formally, the AK model is the neoclassical (1956) model is the first most comprehensive model of model without diminishing returns, and it presents a how we approach not only economic growth, but also one-size-fits-all view of growth dynamics. the entire field of macroeconomics. Building on the assumptions of the neoclassical production function and the evolution of the three inputs into the produc- Product-Variety Model tion function (capital, labor, and knowledge) over time, The second wave of growth theories consists of inno- the Solow model ultimately identifies two possible vation-based growth models, or endogenous models, sources of variation in output per worker: differences which belong to two parallel branches, the product- in capital per worker and differences in the effectiveness variety model and Schumpeterian growth theory. In of labor, also understood as technology. However, the Romer’s (1990) product-variety model, innovation Solow model shows that only growth in the effective- causes productivity growth by creating new, but not ness of labor can lead to permanent growth in output necessarily improved, varieties of products. This para- per worker and that, for reasonable cases, the impact digm grew from the new theory of international trade of changes in capital per worker or output per worker and emphasizes the role of technology spillovers. Per is modest. Consequently, only differences in the effec- this model, the degree of product variety determines tiveness of labor (or technology) have any reasonable an economy’s aggregate productivity, and the growth hope of accounting for the vast differences in wealth rate is the economy’s long-run growth rate of per capita across time and space. Specifically, the central conclu- output. More product variety raises the economy’s sion of the Solow model is that the returns that capital production potential, because it allows a given capi- commands in the market are a rough guide to its con- tal stock to be spread over many uses, each of which tributions to output for a significant part of worldwide exhibits diminishing returns. Thus, increased product economic growth or cross-country income differences. variety is what ultimately sustains growth in this model. New varieties, that is, new innovations, result from research and development investments by research- AK Model ers—entrepreneurs who are motivated by the prospect The AK model was the first version of the endogenous of monopoly rents if they successfully innovate. The growth theory. AK models, as their name indicates, endogenous product-variety model, despite its limita- do not make an explicit distinction between capital tions, can be used in various contexts where competi- accumulation and technological progress. The models tion and turnover considerations are not paramount. Innovation and Development: Why Africa Needs to Leapfrog? 5 Schumpeterian Growth Theory that began in the 18th century in the United Kingdom, The final of the four main paradigms of economic from the steam engine, to electricity, the power loom, growth is the other branch of innovation-based growth machine tools, and so forth. This period of unprec- theory, developed by Aghion and Howitt (1992). This edented technological advancements led to a real latest paradigm was born from modern industrial Industrial Revolution, first gradually in Europe and organization theory. It is commonly referred to as later in North America. The effects of this revolution the Schumpeterian growth theory, because it focuses have reverberated throughout the years across the on quality-improving innovations that render old whole globe, from Latin America to Asia and Africa. products obsolete, and hence involves the force that The exact reasons for why this succession of break- Schumpeter rightly called creative destruction. The through inventions occurred are not straightforward first implication of the Schumpeterian model is that to explain, but perhaps were implicit in the events in faster growth generally implies a higher rate of firm the buildup toward industrialization. turnover, because the process of creative destruction generates the entry of new innovators and the exit of Through a mix of good fortune and conscious efforts, former innovators. Although the theory focuses on by the early 18th century, Britain came to possess individual industries and explicitly analyzes the micro- a unique combination of social needs and social economics of industrial competition, the assumption resources that offered the necessary preconditions that all industries are ex ante identical gives it a simple for commercially successful innovations and a social aggregate structure. There are two main inputs to system capable of sustaining and institutionalizing the innovation in this model: private expenditures made processes of rapid technological change once they had by the prospective innovator, and the stock of innova- started. The list of sectors affected by those inventions tions that have already been made by past innovators. is quite impressive: power technologies, metallurgy, The latter input represents the publicly available stock mechanical engineering, textiles, chemicals, agricul- of knowledge to which current innovators are hoping ture, civil engineering, transport and communications, to add. The theory is flexible enough in modeling the military, and so forth. Figure 1.2 extends the income contribution of past innovations. It encompasses the differences back to 1000 A.D. The figure shows that, case of innovation that leapfrogs the best old technol- going back in time, the gap among countries becomes ogy. It also encompasses the case of innovation that smaller, emphasizing that the big divergence among catches up to a global technology frontier, which rep- countries took place over the past 200 years or so. resents the stock of global technological knowledge Much evidence suggests that there was only limited available to innovators in all sectors of all countries. In economic growth before the 18th century. The major the former case, the country is making a leading-edge catalyst for the momentous change was undeniably innovation that builds on and improves the leading- the Industrial Revolution and the incredible amount edge technology in its industry. In the latter case, the of technological developments that came along with innovation is just implementing technologies that have it, which ultimately affected many sectors. already been developed elsewhere. Undoubtedly, the flagship feature of the entire Industrial Revolution was the fascinating advancement What Does History Reveal about in power technologies. Prior to this period, the major Technology and Development? sources of power available to industry were animate energy and the power of wind and water, with the Very few events have dramatically changed the course only exception being the atmospheric steam engines of human history more than the stream of inventions that had been installed for pumping purposes, mainly 6 Leapfrogging: The key to Africa’s Development?  volution of per Capita GDP FIGURE 1.2: E until 1769, when James Watt patented a separate in Western Offshoots, Western condenser. From that point onward, the steam engine Europe, Latin America, Asia, underwent almost continuous improvements for more and Africa, 1000–2000 than a century. The Watt machine had an unparal- 30,000 leled impact in spearheading the early process of industrialization. 25,000 20,000 Perhaps the only other technology that had an impact 15,000 that was equivalent to that of the steam engine was electricity. Electricity was developed by an interna- 10,000 tional collection of scientists, including Benjamin 5,000 Franklin of the United States, Alessandro Volta of 0 Italy, and Michael Faraday of Britain. Later, French, 1000 1500 1600 1700 1820 1870 1900 2000 German, Belgian, and Swiss engineers evolved the Western offshoots Western Europe Latin America Asia Africa most satisfactory forms of the armature and ultimately produced the dynamo, which eventually made the Source: The Maddison-Project, http://www.ggdc.net/maddison/ maddison-project/home.htm, 2013 version. large-scale generation of electricity commercially Note: GDP = Gross Domestic Product. Values in 1990 International feasible. However, electricity does not constitute a Geary-Khamis dollars. Western Offshoots = Australia, Canada, New Zealand and the United States. prime mover, because however important it may be as a form of energy, electricity must be derived from a mechanical generator powered by water, steam, in coal mines. It is important to stress that this use of or internal combustion. The first successful internal steam power was exceptional and remained so for most combustion engine was invented by Etienne Lenoir industrial purposes until well into the 19th century. in Paris, in 1859. The engine emerged as a result of Steam did not simply replace other sources of power; greater scientific understanding of thermodynamics it completely transformed them. and a search by engineers for a substitute for steam power in certain circumstances. The same amount of scientific inquiry that led to the development of the steam engine was equally applied to the traditional sources of inanimate energy, with Technological Breakthrough in One Sector Can the consequence that waterwheels and windmills were Spill Over to All Sectors of the Economy drastically improved in design and efficiency. A legion An industry that benefited greatly from the power of engineers contributed to the refinement of water- revolution was that concerned with metallurgy and the wheel construction. By the middle of the 19th century, metal trades. The development of new techniques for new designs made possible increases in the speed of working with iron and steel was one of the outstand- revolution of the waterwheel, thus paving the way for ing British achievements of the Industrial Revolution. the emergence of the water turbine, which remains The main characteristic of this achievement was that to date a very efficient device for converting energy. changing the fuel of the iron and steel industry from charcoal to coal enormously increased the production Although the qualification of older sources of energy of these metals. It also provided another incentive power is important, steam became the characteristic for coal production and made available the materi- and ubiquitous power source of the British Industrial als that were indispensable for the construction of Revolution. Few developments took place previously steam engines and every other sophisticated form Innovation and Development: Why Africa Needs to Leapfrog? 7 of machines. All these innovations resulted from the was the length of time the process of natural bleaching fact that the British iron and steel industry was freed techniques took, relying on sunlight, rain, sour milk, from its reliance on the forests as a source of charcoal and urine. The modern chemical industry was virtually and encouraged to move toward the major coalfields. called into being to develop more rapid bleaching tech- niques for the British cotton industry. For example, Abundant and cheap iron thus became an outstanding John Roebuck’s invention of a method permitting the feature of the early stages of the Industrial Revolution mass production of sulfuric acid in lead chambers in Britain. Cast iron was available for bridge construc- effectively met the requirements of the cotton-textile tion, the framework of fireproof factories, and other industry. Thereafter, the chemical industry turned its civil engineering purposes. Closely linked with the attention to the needs of other industries, and par- iron and steel industry was the rise of mechanical ticularly to the increasing demand for alkali in soap, engineering, brought about by the demand for steam glass, and a range of other manufacturing processes. engines and other large machines. Mechanical engi- neering took shape for the first time in Birmingham, The agricultural improvements of the 18th century where the skills of the precision engineer, developed in had been promoted by people whose industrial and manufacturing scientific instruments and small arms, commercial interests made them willing to experi- were first applied to the construction of large industrial ment with new machines and processes to improve machinery. The engineering workshops that matured the productivity of their estates. Under the same sort in the 19th century played a vital part in the increas- of stimuli, agricultural improvement continued into ing mechanization of industry and transport. They not the 19th century and was extended to food processing only delivered looms, locomotives, and other hardware in Britain and elsewhere. The steam engine was not in steadily growing quantities, but also transformed the readily adapted for agricultural purposes, yet ways machine tools on which these machines were made. were found to harness it to threshing machines and even plows, by means of a cable between powerful Perhaps more than any other, the industry that gave its traction engines pulling a plow across a field. In the character to the Industrial Revolution was the cotton- United States, the mechanization of agriculture began textile industry. The traditional dates of the Industrial later than in Britain, but, because of the comparative Revolution bracket the period in which the processes labor shortage, it proceeded more quickly and more of cotton manufacture in Britain were transformed from thoroughly. The combine harvester was developed in those of a small-scale domestic industry scattered over the United States, as were barbed wire and the food- the towns and villages of the country into those of a packing and canning industries. Later, the introduc- large-scale, concentrated, power-driven, mechanized, tion of refrigeration techniques in the second half of factory-organized, urban industry. The transforma- the 19th century made it possible to convey meat from tion was dramatic for contemporaries and posterity, Australia and Argentina to European markets. The and there is no doubt about its immense significance same markets encouraged the growth of dairy farming in the overall pattern of British industrialization. The and market gardening, with distant producers such as most far-reaching innovation in cotton manufacture New Zealand able to send their butter in refrigerated was the introduction of steam power to drive carding ships to wherever in the world it could be sold. machines, power looms, and printing machines. Another sector that heavily benefited from the new In Britain, the growth of the textile industry brought innovations of the 18th and 19th centuries was a sudden increase of interest in the chemical industry, civil engineering. Throughout this period, for large because one bottleneck in the production of textiles engineering works, the heavy work of moving earth 8 Leapfrogging: The key to Africa’s Development? continued to depend on human labor organized by way to displacing the sailing ship on all the main trade building contractors. The use of gunpowder, dyna- routes of the world. In communication technologies, mite, and steam diggers helped to reduce this depen- printing, photography, telegraphs, and telephones dence toward the end of the 19th century, and the inexorably drew the world into a closer community by introduction of compressed air and hydraulic tools also the spread of instantaneous communication. Finally, contributed to the lightening of drudgery. The latter the military was also largely influenced by the new two inventions were important in other respects, such innovations, albeit not as dramatically as transport as in mining engineering and the operation of lifts, lock or communication. Although armies increased in size gates, and cranes. The use of tunneling shields and between 1750 and 1900, there were few innovations the introduction of the iron bell and other inventions in techniques, except at sea, where naval architecture helped civil engineering achieve some monumental rather reluctantly accepted the advent of the iron successes, especially in the design of dams, which steamship and devoted itself to matching ever-increas- improved considerably in the period, and in long- ing firepower with the strength of the armor plating on distance piping and pumping. the hulls. The quality of artillery and firearms improved with the new high explosives that became available. Other prominent sectors of the Industrial Revolution Railroads and the electric telegraph were put to effec- were transport and communications and, to a large tive military use but, in general, the 19th century put degree, the military. The former represents an exam- remarkably little of its tremendous and innovative ple of a revolution within the Industrial Revolution, technological effort into devices for war. so completely were the modes transformed dur- ing 1750–1900. The first improvements in Britain occurred in building roads and canals in the second Technological Innovation Has No Border half of the 18th century. The evolution of the rail- road involved the combination of the steam locomo- Experiences from the United States tive and a permanent travel path of metal rails. The Although the industrial revolution started in the first fully timetabled railway service with scheduled United Kingdom, the United States is unquestionably freight and passenger traffic relying entirely on the the most technologically advanced nation. Despite steam locomotive for traction was opened in 1830, having only 4.3 percent of the world’s population, between Liverpool and Manchester. The opening of Americans hold almost 40 percent of the world’s total this line may fairly be regarded as the inauguration wealth and rank among the highest in productivity. of the railway era, which continued until World War Although early technology may have been adopted I. During this period, railways were built across all from the Industrial Revolution, the process that pro- the continents, opening vast areas of the markets of pelled the United States to the forefront of innovation industrial society. was the result of more than two centuries of invest- ments in human and physical capital. Locomotives rapidly increased in size and power and laid the ground for spurring trade. Steamboats and Many factors contributed to the rapid industrializa- ships also massively benefited from the steam engine, as tion in the United States: the availability of vast lands it transformed marine transport forever. The first com- and literate labor, the absence of a landed aristocracy mercial success in steam propulsion for a ship was that unlike in parts of Europe at the time, the high prestige of the American Robert Fulton, whose paddle steamer of entrepreneurship, the large diversity of climate, and was equipped with a Boulton and Watt engine. By the the upscale free markets. The availability of capital, end of the 19th century, steamships were well on the development of navigable rivers and coastal waterways, Innovation and Development: Why Africa Needs to Leapfrog? 9 and abundance of natural resources facilitated the very and coordination were beginning to shift production cheap extraction of energy, which largely contributed from artisans to factories. The growth of the nation’s to fast industrialization. Thanks to the large railway transportation infrastructure, with internal improve- and highway systems, successively built in the 19th ments and a confluence of technological innovations and 20th centuries, internal markets were enlarged, before the Civil War, facilitated an expansion of the and shipping and production costs were sensibly organization, coordination, and scale of industrial reduced. In addition to physical factors, nonmaterial production. Around the turn of the 20th century, factors, such as the strict legal system, facilitated busi- American industry had superseded European industry. ness operations and guaranteed contracts. Science also Science, technology, and industry have not only pro- played an important role in supporting the national foundly shaped America’s economic success, but also efforts of innovation and development. Consequently, contributed to its distinct political institutions, social the United States was the birthplace of almost 50 structure, education system, and cultural identity. percent of Britannica’s Greatest Inventions, spanning items such as the airplane, Internet, microchip, laser, cell phone, refrigerator, e-mail, microwave, personal Experiences from Emerging Countries computer, air conditioning, assembly line, bar code, Brazil and India belong to a group of five major and much more. emerging economies, often labeled by the acronym BRICS for Brazil, the Russian Federation, India, The early technological and industrial development China, and South Africa. All five countries are lead- in the United States was facilitated by a unique con- ing developing or newly industrialized countries. As fluence of geographical, social, and economic factors. of 2015, the five BRICS countries together accounted After the American Revolution, the new government for over 40 percent of the world’s population, with a continued the strong property rights established under combined gross domestic product (GDP) of US$16.6 British rule and established the rule of law necessary trillion, the equivalent of 22 percent of the world’s to protect those property rights. The idea of issuing GDP. Among the BRICS, Brazil and India share many patents was incorporated into the Constitution, autho- historical and climate similarities with the African rizing the promotion of the progress of science and continent. useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writ- ings and discoveries. An American’s invention of the India cotton gin made cotton a cheap and readily available India was colonized, like most of the African countries. resource in the United States for use in the new textile Although British colonial rule created an institutional industry. Modern productivity researchers have shown environment that stabilized law and order, the colo- that the period in which the greatest economic and nial episode in India is commonly seen as having been technological progress occurred in the United States mostly detrimental to the country. The infrastructure was between the last half of the 19th century and the the British created (railways, telegraphs, and a modern first half of the 20th century. During this period, the legal system) was primarily geared toward the exploita- nation was transformed from an agricultural economy tion of resources, just like in most of Africa. Per Angus to the foremost industrial power in the world, with Maddison (2006), India’s share of the world’s income more than a third of global industrial output. went from 27 percent in 1700 to 3 percent in 1950. Many modern economic historians blame colonial The American colonies gained independence in rule for the dismal state of India’s post-independence 1783, as profound changes in industrial production economy. 10 Leapfrogging: The key to Africa’s Development? After independence, India, like many developing coun- A degree of industrialization was achieved, but growth tries, adopted a socialist-inspired economic model. The was not always sustained and consistent, often dis- economy was heavily centralized and regimented by rupted by social and political tensions. However, the five-year plans. This approach hindered growth and industrial sector grew more rapidly than the agricul- development for several decades, while neighboring ture sector, and traditional industries such as tex- countries (the Republic of Korea; Taiwan, China; and tiles, food products, and clothing declined, while the others) were flying with double-digit growth rates. transport equipment, machinery, electric equipment Around the early 1990s, India started embracing deep and appliances, and chemical industries expanded. and structural economic reforms, with the objective of The strategy left behind a plethora of problems. The making the country more market- and service-oriented kind of growth it promoted resulted in a substantial while expanding the role of private and foreign invest- increase in imports, notably of inputs and machinery, ment. The Indian government massively cut import tar- and the foreign-exchange policies of that period meant iffs, deregulated markets, reduced corporate taxes, and inadequate export growth. Moreover, a large influx of robustly attracted more foreign direct investment (FDI). foreign capital in the 1950s resulted in a large foreign Thus, the country embarked on an unprecedented path debt. The subsequent decades alternated between of growth and development, with the peak of the GDP periods of steady stagnation and periods of spectacular growth reaching 9.6 percent in 2006. Today, the Indian growth, with some episodes of deep crises. Currently, economy is the seventh largest by nominal GDP and following a boom at the end of the previous decade, third largest by purchasing power parity. the Brazilian economy is perhaps at the end of many episodes of contractions and recessions. Nonetheless, Brazil is the ninth largest economy by nominal GDP, Brazil and the eighth largest by purchasing power parity, and Brazil followed a course that was different from India’s. is somehow much more inward-oriented than the rest A former Portuguese colony, Brazil gained full inde- of the BRICS countries. pendence in 1822. The real structural transformations of the country’s economy took place in the 20th cen- tury, around 1930. In the 19th century, slavery was Africa Leapfrogging through III.  still in full effect and was only abolished in 1888. Most Innovation: Opportunities for of the slaves, originally from West Africa, were used in Investments the sugar industry (plantations and factories). It can be inferred from theory and historical evidence Until the early 17th century, the Portuguese and Dutch that Africa can transform through innovation and held a virtual monopoly over Brazil’s sugar exports to technology adoption. However, the change will require Europe. Initially, the Caribbean sugar boom reduced major disruption in the way business is conducted that monopoly. But at the same time, it brought about across various sectors. a steady decline in sugar prices globally, forcing Brazil to reduce its overreliance on a single export commod- All around the world, the most successful entrepre- ity. Exports moved from cattle to coffee, in an effort neurs have come up with solutions to problems that at diversification spanning several decades. Brazil was crop up around them. In each problem, constraint, among many countries to experiment with import or challenge, these innovators see opportunities. substitution industrialization after World War II, with Unfortunately, the same constraints in Africa are mixed results. The performance of the export sector, often pointed out as the reasons why many things are for example, improved only modestly. stalling. Several factors, like the level of skills, service Innovation and Development: Why Africa Needs to Leapfrog? 11 delivery, and poor infrastructure, are considered to and licensing. Buying licenses represents a particu- be constraints to attracting investments in productive larly efficient approach in knowledge transmission sectors. To solve Africa’s challenges, this book argues (Branstetter 2006; Kortum 1997). that those constraints must be viewed as investment opportunities. This is precisely how Africa will gradu- Once constraints are turned into investment opportu- ally see more innovation toward prosperity. nities, there would be potentially countless win-win relations and an alignment between Africa’s develop- Technological upgrading absolutely requires a set of ment and investors’ quest for high returns. This book preexisting physical and institutional infrastructure illustrates this point with a brief assessment of the to support it (Acemoglu 2009). Both of those have following six key sectors. been and continue to be in short supply in Africa, and must be the focus for innovative investment. Incidentally, research shows that FDI and trade are Energy two of the most important channels for international diffusion of knowledge and technologies (Keller 2004). According to the World Bank, altogether the coun- Trade embodies the mobility of new goods that are tries of Sub-Saharan Africa generate roughly the same horizontally or vertically differentiated with embed- amount of power as Spain. Nearly two-thirds of the ded technologies (Aghion and Howitt, 2009; Romer people in Sub-Saharan Africa live without electricity, 1990). Various studies show the relationship between and an even larger share must rely on biomass as the the speed of technology diffusion and the overall main fuel for cooking (World Bank 2017b). Without volume of goods and services exchanged. Markusen radically increased energy production, it will be diffi- (1989), Verspagen and Wakelin (1997), and Keller cult for Sub-Saharan Africa to achieve the Sustainable (1998) analyze the impact of technology diffusion on Development Goals for energy, including to “ensure imports of intermediary goods. Syrquin and Chenery universal access to affordable, reliable, and modern (1989) and Sachs and Warner (1997) find a positive energy services” by 2030. The lack of grid and off-grid and significant impact of trade on technology diffusion electricity results in increased use of kerosene, candles, and economic growth. wood, and coal for cooking and lighting. This has seri- ous health, safety, environmental, and socioeconomic With FDI, three types of effects on local economies consequences and disproportionally impacts women are often mentioned: improvement of local firms’ and children (Mills 2016). technical efficiency by observing the best practices of foreign multinationals; renewed competitiveness, The paradox in Sub-Saharan Africa’s energy sector as a direct result of the competition between local is that there are abundant low-carbon and low-cost firms and foreign multinationals; and mobility of energy resources (Eberhard et al. 2011). The biggest the skilled labor force from foreign multinationals to potential energy source is water. Over 90 percent of local economies (Gorg and Strobl 2001). Branstetter Africa’s economically viable hydropower potential, (2000) provides further evidence for the knowledge equivalent to about one-tenth of the world total, is transfer from multinationals to local economies. Often unexploited (Eberhard et al. 2011). Per BP’s estimation, overlooked is the role of international collaboration hydroelectric accounted only for 13 percent of pri- between upstream innovating firms from developed mary energy consumption in the region in 2016.1 The countries and downstream adopting firms in develop- energy sector in Africa demonstrates huge investment ing economies. Such collaboration could take various opportunities for unlocking the potential of the sector forms, including subsidiaries, joint ventures, mergers, and contributing to the development of the continent. 12 Leapfrogging: The key to Africa’s Development? Finance become a popular alternative to cash for many busi- nesses and government agencies, and has contributed Another area where Africa seriously lags is the con- to drastically improving financial inclusion in Kenya. straint to credit and financial resources (Stein 2013). Financial development is rightly regarded as a cen- terpiece in the debate on how to foster growth in Education and Skills developing countries and reduce stark poverty levels. There is ample evidence over the past couple years Together with the infrastructure deficit and poor finan- to confirm the notion that financial development is cial development, shortcomings in education, skills, indeed growth enhancing, especially in developing and knowledge transmission constitute an obstacle countries. Improving access to credit and financial to sustained growth and technological development deepening help especially those industries that are in Africa. The importance of human capital in fos- more dependent on external finance, and help to tering growth, empirically and theoretically, cannot reduce financing constraints, particularly for smaller be overemphasized. Generations of engineers and firms. Financial deepening has a transformative effect skilled journeymen from Britain to China made the on economies, shaping the industrial structure, firm Industrial Revolution possible and helped innovation size distribution, and even organizational structures. and economic development become a universal real- ity. Although school enrollment has greatly improved Given the crucial importance of credit and finance for in Africa in recent years, it remains the lowest by any economic development, the staggering superficiality of measure compared with the rest of the world. In 2014, African finance is an understatement. African financial only 57 percent of African children were enrolled sectors are very small in absolute and relative terms. in primary schools, with a great gender imbalance With a few exceptions, such as Mauritius, South Africa, in favor of boys (UNESCO 2014). There is much and a handful of offshore financial centers, financial hope in Africa that the fourth goal of the Sustainable systems in Sub-Saharan Africa are among the smallest Development Goals, which aims at ensuring inclusive, in the world. A small financial system is often corre- quality education and promoting lifelong learning lated with productivity and skill shortages, and pre- opportunities for all, could bring about more success vents banks from exploiting economies of scale that than all previous attempts. Equally, investing in more otherwise would have been possible. Additionally, vocational training, revamping educational systems to small size deters many banks from undertaking large adapt them to the countries’ needs, and giving a greater investments in technology and innovation. The oppor- role to local languages, at least in primary education, tunities for innovative investment in the financial sec- are all needed to improve knowledge creation and tor in Africa are numerous, and should account for skills transmission in Africa. the local context. The success of M-Pesa in Kenya demonstrates how Agriculture innovative investment can help the continent to leap- frog in the sector. The continent’s national and regional Other constraints on technological development and financial systems are characterized by limited outreach, adoption in Africa result from the attitudes of local with less than one in five households having access to entrepreneurs, consumers, farmers, and others toward any formal banking service, from savings to payments risk and uncertainty (Adesina and Baidu-Forson 1995; and credit. Seven in 10 adults in Kenya use M-Pesa, Adhvaryu 2014; Fafchamps and Soderbom 2013; making millions of transactions daily. The service has Lambrecht et al. 2014). These attitudes come from Innovation and Development: Why Africa Needs to Leapfrog? 13 the high degree of risk aversion and highlight the needs to account for women. Women produce much crucial importance for national governments to pro- of the food on the continent, and yet they are largely vide enough financial guaranties to push farmers and locked out of land ownership, access to credit, and others to adopt new technologies. Insurance schemes productive farm inputs, such as fertilizers, pesticides, are very poorly developed in Africa, suggesting that and farming tools. to adopt new technologies many entrepreneurs on the continent rely on their own private resources. In agriculture, a sector plagued by potential droughts Information and Communications and other natural risks, a coherent and comprehensive Technology insurance mechanism would boost the adoption of improved technologies, as recently shown by Carter, Despite the many challenges ahead, there are a Cheng, and Sarris (2016). few examples of technological adoption in Africa. Prominent among them is the exponential growth of As Africa grapples with the challenges of sustaining mobile phones in recent years. Mobile phones will high levels of economic growth, plunging commodity account for almost one-tenth of Africa’s GDP by the prices, and the effects of climate change, revitalizing end of this decade, which underscores how the explo- key economic sectors (especially agriculture) must sive growth in the telecom industry is having major become a top priority. A dynamic, vibrant, sustainable, economic, social, and even political transformational and resilient agriculture sector is vital for Sub-Saharan effects. The extraordinary rate at which the mobile Africa’s economic future, as the sector has been shown phone industry has grown across the continent over to be two to four times more effective than other sec- the past decade and a half is almost unique, and this tors in raising the incomes among the poorest people growth is expected to be even faster through 2020 and (Kijima, Otsuka, and Sserunkuuma 2011; Benin 2016). beyond. As handsets and data become more afford- Agriculture in Sub-Saharan Africa stands at the cusp of able, greater accessibility to mobile phones (which transformational change, and the evidence is compel- have by far outpaced other forms of communications ling. Farming represents the primary source of income infrastructure on the continent) is changing the way for food for people and provides up to 60 percent of in which public services are delivered, and how busi- all jobs on the continent (ILO 2013). The continent ness and politics are being conducted. In part, because is bursting with untapped potential: with 200 million the old state-run, fixed-line telephone companies hectares, Sub-Saharan Africa is home to nearly half of the were inefficient monopolies, many in Africa took up world’s uncultivated lands that can be effectively tapped mobile phones with great enthusiasm at the start of for production. Africa only uses 2 percent of its renew- the past decade. There are now more mobile phones able water resources, compared with 5 percent globally. than adults in most African countries. In recent years, the rise of mobile phone access has acted as a new Together with abundant resources, including a game-changer, bringing many online who do not have resourceful, enterprising youth population, strategic access to desktop machines or fixed-line broadband. investments in agriculture can unleash virtuous growth This exponential growth has fueled a parallel expan- cycles. Farmers in Africa especially need new tech- sion in the number of innovators and entrepreneurs nologies (such as higher-yielding, more resilient food looking to ride the mobile wave, and opened an array crops) that could deliver bountiful harvests. They also of uses for mobiles in areas such as business, health need more access to electricity, more irrigation, and care, and education. The spillover effects of the use of better physical infrastructure linking them to lucrative mobile phones on other sectors have been substantial, food markets. The agriculture sector in Africa equally and the best may be yet to come. 14 Leapfrogging: The key to Africa’s Development? The continent now needs to improve digital literacy limited without the consideration of human factors. and increase Internet penetration by making it more Heeks (2002) points out that African governments accessible, better, and more affordable. The combina- have been using information technology for more tion of reliable and cheap Internet with the already than four decades and progress in the use of ICT for strong phone base could help propel the continent to governance should be seen as evolutionary rather than new heights, as well as reduce the digital divide with revolutionary. the rest of the world. The digital divide across and within countries can result in those better provisioned with ICT hav- Governance ing a greater influence on and use of e-government (World Bank 2017b). Designing public services for a The potential of digital technologies for improv- wide audience and a variety of ICT can mitigate this. ing governance has been recognized for quite some In Kenya, for example, the government partnered time. Information and communications technology with mobile operators to support an application that (ICT) may affect democratization and democratic works on older model cellphone to communicate with governance, macroeconomic and public-sector man- citizens living in remote areas without access to the agement, and agriculture and environmental manage- latest technologies (Turianskyi and Gruzd 2016). In ment. However, the digital divide between Africa and governance, there are many investment opportunities the rest of the world has been identified as a major that could be implemented through public-private barrier to the application of digital technologies for partnerships, and deploy electronic public services governance. 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Over 90 2,000 percent of African agriculture depends on rainfall with no irrigation. The techniques used to cultivate the soil 1,000 are behind those in other developing regions, lacking 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 not only irrigation, but also fertilizers, pesticides, and East Asia & Pacific Latin America & Caribbean high-yield seeds. Agriculture in Africa also experiences South Asia Sub-Saharan Africa problems such as access to markets and financing. Source: World Bank. Despite its tremendous agricultural potential, Africa is a net importer of food due to population growth, low and stagnating agricultural productivity, policy unique nature of the region’s agriculture sector—small distortions, weak institutions, and poor infrastructure shareholdings and distinctive agroecology—transfor- (Rakotoarisoa, Iafrate, and Paschali 2011). These bar- mational changes will require solutions beyond the riers are inhibiting the continent’s ability to achieve so-called Asian Green Revolution3 epitomized by the food security. intensive application of high-yield seeds, fertilizer, pesticides, and irrigation (World Bank 2008). Further, There is a strong link between agricultural growth and the application of Green Revolution principles may not poverty reduction.1 A regression analysis covering 25 always be pro-poor, and should be subject to rigorous developing countries finds that although economic impact assessments that take into account land tenure, growth was an important contributor to a decrease in agricultural practices, and social differences (Dawson, poverty, the sector mix of growth mattered substan- Martin, and Sikor 2016). tially, with growth in agricultural incomes being espe- cially important (Cervantes-Godoy and Dewbre 2010). Solutions for raising agricultural productivity in Africa are influenced by the shifting relationship between Most Sub-Saharan African agriculture consists of small technology adoption and sustainable farming and the shareholdings (figure 2.2) (FAO 2012).2 Due to the influence of various interest groups. Several factors 19 20 Leapfrogging: The key to Africa’s Development?  verage Size of Agricultural FIGURE 2.2: A In Zambia, drought magnified by climate change has Holdings (hectares) dried up dams, severely affecting hydroelectric power 2,500 in the country (Onishi 2016) and contributing to crop Average size of agricultural holdings (ha) failure and rising food prices (Kaunda 2017). With the right supportive environment, sustainable intensifica- 200 tion of agriculture in Africa can produce higher yields, 60 50 boost income for farmers, and regenerate natural capi- 40 tal (GO-Science 2014). 30 20 10 Agriculture forms part of a rural ecosystem where 0 diversification opportunities can enhance sustain- Asia (developing) Asia OECD (Jap. & R.Kor.) Africa (Sub Saharan) without SA Near East & North Africa Pacific (developing) Africa (Sub Saharan) with SA Europe (including Russian Federation) Central America & the Caribbean South America North America (including Greenland) Australia ability, increase incomes, and generate employment. Experience from other regions suggests that as agri- cultural productivity rises, workers move to urban areas to seek jobs in other sectors. Given the conti- nent’s low proportion of manufacturing and industry Source: FAO 2012. and challenges with rapidly growing urbanization, an alternative strategy is to enhance the rural economy. This includes widening the product mix of single- affect technology adoption, including the application crop farmers, expanding agriculture value chains, and of biological, chemical, and mechanical methods (such developing rural tourism. as inputs and assets); farmer knowledge; the agricul- ture value chain; and technologies emerging from High-value, nontraditional crops can supplement outside the farm sector (OECD 2000). Sustainable farmers’ income, with significant potential for exports farming reflects the capacity to generate sufficient food (Temu and Temu 2005). Kenya’s horticulture subsec- in an economically efficient, socially responsible, and tor is a leading foreign exchange earner, generating environmentally sound way. around US$1 billion a year, and it is the top flower exporter to the European Union; production increased There are various perspectives on the sustainability from 10,946 tons in 1988 to 133,658 tons in 2016.5 of technologies, depending on whether it is at the An entrepreneur benefitting from the Mali Agricultural farm level, within the agribusiness sector, or from Competitiveness and Diversification Project was able the lens of the national, regional, or global economy. to acquire two high-capacity mango processors that Sustainability concerns are rising in areas such as tripled output, which enabled the business to export food-related illness (including genetically modified to Europe (World Bank 2015a). organisms), environmental impacts (for example, pesticide use), and animal welfare (Tanentzap et al. Links between informal value chains in rural areas 2015). Increased use of food crops for biofuel can have and agribusiness generate jobs and opportunities serious implications for food security (FAO 2009). for smallholder farmers (Byerlee et al. 2013). South Governments face challenges in aligning the private Africa launched a rural tourism strategy to promote interests of agricultural businesses with the public equal access to tourism opportunities, noting that the interests of small farms and concerned citizens. Added country’s prime tourist attractions were not located to this mix is the growing impact of climate change on in cities, but rather in rural areas, including poverty- weather patterns affecting Africa’s agriculture sector.4 stricken areas with world heritage sites (South Africa Agriculture 21 Department of Tourism 2012). A survey among the ICT Applications in Agricultural FIGURE 2.3:  indigenous population living in the Ngorongoro Domains Conservation Area in Tanzania, where livestock is the OPPORTUNITIES, ENHANCING ACCESSING IMPROVING primary economic activity, found that 39 percent of ACCESS, AND PRODUCTIVITY MARKETS AND PUBLIC SERVICE CROSSCUTTING ON THE FARM VALUE CHAINS PROVISION the population was also involved in tourism (Melita THEMES and Mendlinger 2013). The survey respondents Access and Increasing Market and price Rural reported that tourism was a reliable source of income affordability productivity information governance compared with other activities, and provided extra Mobile Agriculture Supply chain Land income for food and education expenses. applications innovation management administration systems Gender and ICT Risk Forest Digital technologies have emerged with notable services Rural finance management governance impacts on agriculture and rural livelihoods. Unlike Farmer Traceability and direct inputs, such as seed, irrigation, fertilizers, organizations food safety or pesticides, digital technologies raise agricultural productivity and rural incomes through their effects Source: World Bank 2017. Note: ICT = information and communications technology. in areas such as finance, crop and weather monitor- ing, animal control, markets, and farmer education. Digital technologies include mobile phone applica- tions,6 sensors,7 satellites,8 radio frequency identifica- funding for agriculture since then, only five reached tion devices,9 big data,10 drones,11 and so forth. The the CAADP target during 2008–14. Agriculture sec- application of these tools can be categorized across tor growth in Africa increased at 3.8 percent a year four domains critical for rural livelihoods: opportu- between 2003 and 2008. Several countries surpassed nities, access, and cross-cutting themes; enhancing the 6 percent target during different periods and 15 productivity on the farm; accessing markets and value did so during 2008–14 (AGRA 2016). chains and improving public service provision (figure 2.3). The cost of digital technologies has dropped, making them increasingly feasible for African farm- II. Micro Jumps ing (Ekekwe 2017). An analysis of social enterprises operating across East Africa finds that technology is a Agricultural leapfrogging examples are difficult to key enabler for entrepreneurs involved in agriculture, quantify at a macro level. This is because a notable lowering transaction costs and enabling scale through improvement in productivity is often related to a the provision of information and finance, collectivizing specific crop and not necessarily translated into smallholders, and providing market links (Intellecap nationwide agricultural advances. Similarly, a rise in 2016). agricultural output may not affect overall incomes in the rural sector. For example, although the value The Comprehensive Africa Agriculture Development of crops in Zambia has risen over 50 percent in the Programme (CAADP) is Africa’s framework for agri- past decade, the increase was mainly due to subsidies culture sector transformation.12 Ratified in 2003 in received by large farms.14 Bearing those limitations in Maputo, Mozambique, the resulting declaration13 mind, several examples of rapid productivity gains called for at least 10 percent of government spending have positively affected welfare. to be allocated to agriculture and rural development, and sector growth to reach an annual average rate of The Alliance for a Green Revolution in Africa (AGRA), 6 percent. Although most countries have increased a partnership between the Rockefeller Foundation 22 Leapfrogging: The key to Africa’s Development? FIGURE 2.4: Maize Yields in Western Kenya as evidence of a Green Revolution, given that his- Effect on Maize Yields Among Smallholder Farmers in Western Kenya torically yields over 2 t/ha mark a threshold followed from Adoption of Improved Seed and Fertilizer, 1997–2007 by sustained agricultural productivity (McArthur 2,000 1,935 and McCord 2017). Cereal yields in the country 1,800 increased by more than a third between 2007 and 1,600 Kg Maize Grain per Ha 1,400 1,271.25 2014. The rise in yields coincided with the end of 1,215 1,200 civil war in the country in 2007 (although there was 1,000 838,125 a second outbreak in 2011, it lasted less than six 800 months). The resulting political stability expanded 600 400 the area under cultivation. Another factor was a large 200 increase in government spending, resulting from the 0 2010–15 National Agricultural Investment Program. Local variety, Local variety Hybrid variety, Hybrid variety no fertilizer plus fertilizer no fertilizer plus fertilizer Government agricultural expenditures rose from 2 per- Source: AGRA’s Program for Africa’s Seed Systems (PASS): Stren- cent of total spending in 2007 to a peak of 6 percent gthening Public Crop Genetic Improvement and Private Input in 2012 (figure 2.5). The increase included funding Supply Across Africa. Note: ha = hectare; kg = kilogram. for rural infrastructure and farmer training programs; there was also better seed and greater availability of fertilizer. Rice is a popular food item in the country, accounting for over half of domestic cereal produc- and the Bill & Melinda Gates Foundation founded in tion. The rise in rice yields has made rural areas self- 2006, has supported hundreds of initiatives to help sufficient; urban areas continue to rely on rice imports small shareholding farmers. One area of notable suc- to supplement domestic production.17, 18 cess is AGRA’s program for seeds, which is especially relevant given the impact (along with fertilizer) of seeds Other African countries have surpassed cereal yields on agricultural productivity (figure 2.4). AGRA has of two metric tons; in two countries—Ethiopia and invested US$100 million in African seed businesses, Rwanda—agricultural growth has been a main driver of working with more than 100 companies, representing poverty reduction (Veras 2017). Rwanda focused agri- about a third of the market. They produced around cultural production on staple crops to replace imports 125,000 tons of improved seed in 2015, up almost and enhance food security in the country. The govern- 400 percent from 2010. As a result, corn yields have ment’s crop intensification program reduced seed and doubled in the 18 African countries where AGRA works fertilizer costs for farmers.19 Fertilizer use more than (Gebre 2016.) According to AGRA, the 57,000 tons of doubled, from 18 percent in 2005–06 to 38 percent improved seed produced in 2012 catalyzed yields of 5.7 in 2010–11; average sales of agricultural output rose million metric tons of additional food, enough to feed from 18 to 25 percent. This helped drive GDP growth, 34 million people.15 AGRA plans to invest US$500 mil- raising per capita income by 62 percent, from US$333 lion over the next five years in seed businesses, adopt- to US$540 during the period and driving the poverty ing principles similar to startup ecosystems by acting rate down from 57 to 45 percent (Kalibata and Roy as an angel investor with investments in the range of 2015). According to the World Bank, 45 percent of US$150,000 and working closely with entrepreneurs. poverty reduction in Rwanda over that period can be attributed directly to agriculture (World Bank 2013). Côte d’Ivoire has generated interest because its cereal yields have increased, surpassing two metric tons per Cereal production tripled in Ethiopia between 2000 hectare (t/ha) in 2010.16 This increase is perceived and 2014 (The Economist 2016). According to the Agriculture 23 FIGURE 2.5: Cereal Production and Government Agricultural Expenditure, Côte d’ Ivoire 2,500 7 Government agriculture expenditure (kg per hectare, 3-year average) 6 2,000 (% of total expenditure) 5 Cereal yield 1,500 4 1,000 3 2 500 1 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Côte d'Ivoire Sub-Saharan Africa Côte d'Ivoire Africa wide Source: Adapted from World Bank and ReSAKSS (Regional Strategic Analysis and Knowledge Support System). Note: kg = kilogram. World Bank, poverty in Ethiopia has dropped by 33 bread. Teff’s rapid spread is attributed to a range of percent since 2000, with agricultural GDP growth factors, including demonstration plots, seed loans, near 10 percent per year (World Bank 2015b). An and training; informal networking to share informa- analysis of the cereal growth reveals that it was mainly tion about production techniques was also important driven by acreage expansion rather than inputs (GO-Science 2014). (Taffesse 2008). One exception was teff, a grain that is a main ingredient of the country’s popular injera TABLE 2.1: Summary of Productivity Outcomes from Case Studies Net multiplicative increase in food production Thematic focus Area improved (ha) Mean yield increased (ratio) (1,000 tonnes/year) Crop variety and system improvements 391,060 2.18 292 Agroforestry and soil conservation 3,385,000 1.96 747 Conservation agriculture 26,057 2.20 11 Integrated pest management 3,327,000 2.24 1,418 Horticulture and very small-scale agriculture 510 n.d. n.d. Livestock and fodder crops 303,025 n.d. n.d. Novel regional and national partnerships and policies 5,319,840 2.05 3,318 Aquaculture 523 n.d. n.d. Total 12,753,000 2.13 5,786 Source: GO-Science 2014. Note: ha = hectare; n.d. = no data. 24 Leapfrogging: The key to Africa’s Development? Box 2.1: Irrigation Project in Western Kenya Lack of irrigation is often cited as one of the shortcom- The Government of Kenya and the African ings of African agriculture. This is being overcome in Development Fund jointly funded the project. Sino western Kenya through a water conservancy and irri- Hydro, a Chinese construction firm, was contracted gation project located in Homa Bay County beside by the Ministry of Regional Development Authorities Lake Victoria. The densely populated region, home to to build gravity-fed irrigation channels along two riv- many small-scale cereal farmers, has unreliable rainfall, ers. Phase I was completed in 2011. Because of the experiencing frequent crop failures. The aims of the project, farmland is now under irrigation and there is a Kimira Oluch Small Holder Farm Improvement Project reliable source of drinking water for local people and are to reduce reliance on rainfall, improve agricultural livestock. The irrigation scheme also offers an oppor- productivity, decrease poverty, and improve the liv- tunity for farmers to diversify production by providing ing standards of small farmers (African Development water for grain, fruit, and vegetable cultivation; fish Fund 2006). breeding; and other activities. An analysis of sustainable agricultural processes across Research and development (R&D) is essential for devel- 20 African countries between the 1990s and the 2000s oping and adapting new technologies and is positively finds productivity gains via two pathways (GO-Science associated with high returns (Stads and Bientema 2014). Multiplicative increases result from the use of 2015). While investment in agricultural R&D tripled new and improved varieties and improved manage- in China and India over the past 20 years, it increased ment practices. Additive benefits accrue by diversifying by barely a fifth in Sub-Saharan Africa (and declined in into new crops and livestock. These techniques and about half the region’s countries) (World Bank 2007). practices have resulted in increased yields (table 2.1). In 2011, public and private agricultural investment The analysis also finds that the adoption of more than in Sub-Saharan Africa was just 4 percent of the world one practice produced cumulative gains through syn- total, down from 6.1 percent three decades earlier ergies, resulting in higher yields compared with single (Pardey et al. 2016). Around 40 percent of African applications such as just fertilizer or irrigation. For countries spent less on agricultural R&D in 2011 instance, decision makers often view increased irriga- than they did in 1980. In small African countries, it tion as a general panacea for boosting crop production is difficult to benefit from economies of scale in R&D, in dry lands, but restoring soil health alongside the making regional collaboration essential. International effective use of rainwater may be a more cost-effective technology transfer is limited due to the unique African and sustainable option (FAO 2011). Box 2.1 presents agroecological environment, placing even more impor- an example of an irrigation project in Western Kenya. tance on national R&D efforts. Shortages of skilled researchers are exasperated by the retirement and departure of experienced scientists. More resources Conditions for Agricultural III.  need to be devoted to capacity building (Nienke and Leapfrogging Stads 2011). The volatile nature of African funding for agricultural R&D reflects the limited government Several areas require attention to create the neces- funding and dependence on irregular development sary preconditions for agricultural leapfrogging partner assistance. African governments need to in Africa. design coherent R&D programs and commit sufficient Agriculture 25 funding while ensuring that donor funding is aligned 1,000 farmers to grow rice, vegetables, and fruits with strategies. year-round.21 Similar to other sectors, a growing number of Stimulating investment in rural infrastructure is essen- advances in African agriculture are emerging from tial to improve the livelihoods of farmers and reap pro- entrepreneurial innovation ecosystems. A new breed ductivity gains. Mobile infrastructure has spread the of young “agripreneurs” is emerging, applying digi- furthest, with the proportion of households with cell tal technologies and principles from startup eco- phones in many rural areas in Africa being higher than systems to enhance agricultural processes.20 Local the availability of electricity. This situation is largely entrepreneurs have a better understanding of their due to private investment, a model that could be more rural context, giving them an advantage over large widely applied in other infrastructure sectors through multinationals. Further, local entrepreneurs are more licenses and public-private partnerships. Another les- suited for surmounting challenges such as fragmented son that can be applied from the telecommunications markets, lack of scale, illiteracy, and native tradi- sector is the use of universal service funds to finance tions (Ekekwe 2017). Their efforts can be facilitated investment in uneconomical rural areas. Governments by an enabling environment that includes incuba- also need to prioritize public funding for agricultural tors, information exchange networks, and funding. infrastructure, recognizing the trade-offs between Collaborative and efficient links are also essential where the investment is made (for example, roads, along the agriculture supply chain from farmers, to irrigation, extension services, R&D, and so forth) and agribusinesses, to consumers. Policy makers should economic growth and poverty reduction (Pauw and involve all these groups when developing sector Thurlow 2013). strategies and plans. Skills and education are needed at all levels, including Investment is needed in rural infrastructure, especially policy making, research, application of technology, transportation, electricity, telecommunications, and and the farmers themselves. Although new digital irrigation. The impact of such investment can be signif- technologies have emerged with demonstrated impacts icant. One study finds that access to all-weather roads for the rural sector, skills in government agriculture reduces poverty by 6.9 percentage points (Dercon et offices are often limited, affecting their application. al. 2009). In Niger, the expansion of mobile cellular Extension agents need to be trained in the utilization networks led to grain traders intrinsically using cell of new technologies, so they can transmit that knowl- phones to reduce search costs, decreasing informa- edge to farmers. tion asymmetries and improving consumer and trader welfare (Aker 2010). Lower costs and innovative There are also resource constraints for spreading business models have spurred the take up of off-grid knowledge. For example, in Ghana, the ratio of agri- electricity, providing power to hundreds of thousands cultural extension agents to farmers is 1:1,500, com- of rural homes in the past 18 months, which is still pared with a recommended ratio of 1:400 (Ministry a tip of the iceberg, given that half of Sub-Saharan of Food and Agriculture 2015). This is a key factor Africa is without power (McKibben 2017). Irrigation deterring the adoption of technology among farmers. is essential for crop production, yet less than 5 percent In Senegal, a notable number of experienced technical of cultivated land in Africa is irrigated. Solar power is staff is nearing retirement (Ministry of Agriculture and emerging as an attractive option for irrigation. In 2016, Rural Equipment 2014). These examples are largely Rwanda launched a US$13 million solar-powered irri- applicable to many African countries, reinforcing gation scheme in the Ngoma District, enabling some the need to enhance capacity-building initiatives for 26 Leapfrogging: The key to Africa’s Development? technical experts. The knowledge capacity of farmers IV. Future Research also needs to be raised, so they can leverage inputs, machinery, and digital technologies to enhance pro- It is questionable whether classic theories about agri- ductivity. Ineffective user interfaces and lack of digi- cultural economic transformation remain relevant tal literacy are among the reasons cited for the lack today, including debates about whether development of success of some information and communications should be agriculture driven or export led (McArthur technology in agriculture projects (Aker, Ghosh, and and McCord 2014). This question is particularly rel- Burrell 2016). evant in the African context, given that the region remains the most dependent on agricultural liveli- Despite the importance of agriculture in the African hoods and the rapid changes affecting the sector. economy—18 percent of GDP in 201622—its potential Some economists question whether the development remains unrealized due to chronic underinvestment. literature and various national and regional contexts are This is reflected by low productivity and character- relevant for agricultural transformation and economic ized by limited mechanization, non-optimum inputs, restructuring in Africa (Breisinger and Diao 2008). and uneven application of new technologies. African Classic economic development models are also under governments spent only 3 percent of their budgets strain from new trends that have emerged, such as glo- on agriculture in 2010, seven years after committing balization, digital technologies, and climate change. A to spend at least 10 percent in the CAADP Maputo revised framework is needed that revisits solutions for Declaration.23 Investment per agricultural worker the transformation of agriculture in light of previous has been flat or declining over the past 30 years. The experience, new trends, the need for sustainability, and region’s agriculture sector receives less than 5 percent the socioeconomic realities of the African continent. of lending from formal financial institutions, starving The revised framework could revisit the agriculture-led agricultural businesses of capital (Snyder 2016). There versus export-led debate by considering a new theory are several factors behind this, including the riskiness of agribusiness-led growth, including regional trade, of small landholding farms, low returns, uncertain for which export potential might be considerable. property rights and land tenure, and inadequate policy and regulatory frameworks (AGRA 2016). Better understanding is needed of successful interven- tions and challenges for scaling up. There is growing Nevertheless, there are indications that funding is research about the impacts of inputs and technologies available. A watershed event was the sixth African in the African agriculture sector, but it is typically Green Revolution Forum in 2016, where leading based on small pilots. Further, the evidence is often development partners and businesses pledged more mixed. More insight is needed on the specific causes than US$30 billion for African agriculture over the of agricultural productivity gains. For example, the next 10 years,24 the largest-ever financial package for dramatic rise in cereal yields in Côte d’Ivoire is still the sector. In addition, private sector initiatives for subject to much speculation as to the causes. A better funding are growing, including banks, private equity understanding is needed about the impact of technolo- funds and venture capital, impact investors, and gies, including analysis of the share of productivity microfinance institutions. The African countries most gains due to inputs (seeds, fertilizer, and so forth) ver- likely to benefit are those that prioritize agriculture, sus the application of digital technologies. Equally, including a sound sector strategy and plan, have an there is not a clear picture of how new techniques are inclusive implementation process at the country level, absorbed by farmers and translated into higher out- offer attractive investment incentives, and demonstrate put. Another challenge is disentangling income effects commitment to necessary reforms. from interventions. For example, a study shows that Agriculture 27 banana farmers in Kenya who used mobile money supplies, and weather, to provide detailed, real-time had higher productivity, but they were also wealthier information. These precision farming technologies are to begin with, suggesting a higher propensity among highly relevant for Africa’s agriculture sector (Dlodlo high-income groups to adopt new tools (Kikulwe, and Kalezhi 2015) and are being used in various pilots Fischer, and Qaim 2014). and small-scale implementations (Kariuki 2016). Precision farming offsets some of the negative side The more widespread digital technology interventions effects of inputs through environmentally friendly in Africa’s rural sector are low-tech, in that they revolve techniques. The widespread deployment of mobile around narrowband mobile networks and voice, text networks in Africa is a plus, since the Internet of messaging, and USSD-based mobile money. Their suc- things transmits data using wireless communications. cess is explained by widespread 2G mobile network However, more advanced Internet of things applica- coverage and straightforward applications that run on tions are based on sophisticated data analytics, trigger plain and inexpensive cell phones. many more bits, and are tied to cloud computing plat- forms. These advances will require investment in faster Agriculture is entering a new phase of technology and higher-capacity 5G wireless networks, a robust characterized by big data applications and the Internet national Internet infrastructure, and widespread avail- of things which promises to trigger huge productiv- ability of smartphones. The steps to adoption of the ity gains (Lohr 2015). The new phase includes cheap Internet of things in African agriculture merit deeper sensors and drones monitoring plants, livestock, water analysis, given its potential impact. 28 Leapfrogging: The key to Africa’s Development? Endnotes 6 An initiative in Ghana, Kenya, and Tanzania will benefit 500,000 farmers through a range 1 Although there is a strong link between agricultural of financial services linked to cell phones. The growth and decreases in poverty, there are excep- initiative includes buying inputs on credit using tions. For example, Zambia experienced a large mobile money, selling produce through the mobile increase in maize yields from 2006 to 2011, but did phone, and obtaining insurance against risks not see a reduction in poverty. Underlying inequali- through scratch cards in seed packages. https:// ties and government policy explain the discrepancy agra.org/2016AnnualReport/milestones-2016/. (Veras 2017). Zambian productivity gains were 7 Sensors are used in Nigeria to analyze soil data so mainly the result of fertilizer subsidies to large farms. that farmers apply the right fertilizer and optimally Small farms, less than one hectare in area, received irrigate their farms (Ekekwe 2017). only an average of 7 percent of the subsidy. 8 Satellite images are used in Sudan to provide 2 Although small shareholdings pose productiv- information about flooding. This information is ity challenges, they have other benefits: “While then conveyed to farmers using mobile phones. 75 percent of the world’s food is generated from https://wle.cgiar.org/thrive/2014/03/25/connect- only 12 plants and 5 animal species, making the ing-farmers-sudan-real-time-flood-management- global food system highly vulnerable to shocks, information. biodiversity is key to smallholder systems who 9 Botswana’s Livestock Identification Trace-back keep many rustic and climate-resilient varieties System tags cattle with radio frequency iden- and breeds alive” (FAO 2012). tification devices. Information is transmitted 3 The Asian Green Revolution refers to the applica- to a central database. The database enables EU tion of high-yielding varieties of wheat and rice certification for the country’s beef exports, and in the region beginning in the 1960s. Within two is a key repository of information for livestock decades, around 90 percent of wheat farms in Asia farmers, as well as for state veterinary services were growing modern varieties, and plantings of and health authorities. https://cgspace.cgiar.org/ high-yielding rice increased by a factor of five. handle/10568/57650. The use of high-yield seeds was accompanied by 10 Researchers in Senegal combined satellite data, increased use of mineral fertilizers, pesticides, and national statistics, the road network, and mobile irrigation. These rapid gains avoided a food crisis data to form a big data set that was analyzed to in Asia and provided the foundations for rapid predict the price of millet-enhancing food security economic growth in China, Southeast Asia, and initiatives. See UCLouvain (2016). South Asia (http://www.fao.org/docrep/x0262e/ 11 In Nigeria, drones are used to map the potential x0262e06.htm). for expanding rice cultivation. For example, the 4 The World Bank announced a new multibil- United Kingdom–based GrowMoreX Consultancy lion U.S. dollar funding initiative for the region Company operates drone-based farming services. in 2015, noting: “Sub-Saharan Africa is highly The company conducted a survey of 3,000 hectares vulnerable to climate shocks, and our research of land suitable for irrigated rice farming in New shows that could have far-ranging impact—on Bussa, Niger State. The area has limited access to everything from child stunting and malaria to roads, electricity, clean water, and other ameni- food price increases and droughts.” See World ties. https://agra.org/news/important-wins-were- Bank (2015c). notched-up-for-african-agriculture-in-2016/. 5 See Kenya Flower Council, “Floriculture in Kenya” 12 http://www.un.org/en/africa/osaa/peace/caadp. at: http://kenyaflowercouncil.org/?page_id=92. shtml. Agriculture 29 13 http://www.nepad.org/resource/au-2003-maputo- %5D=1430&cHash=9ea6ad33ebc1ccfcd109caa declaration-agriculture-and-food-security. f6f358203. 14 https://www.africaresearchinstitute.org/newsite/ 22 This figure refers to Sub-Saharan Africa. See: blog/agricultural-subsidies-in-zambia/. http://data.worldbank.org/indicator/NV.AGR. 15 See: “AGRA’s Program for Africa’s Seed Systems TOTL.ZS. (PASS): Strengthening Public Crop Genetic 23 http://www.ifpri.org/blog/public-expenditure- Improvement and Private Input Supply Across agriculture-trends-“black-boxes”-and-more. Africa.” http://www.fao.org/fileadmin/user_ 24 Most of the funding was pledged by three orga- upload/drought/docs/AGRA%20Seed%20 nizations: the African Development Bank (US$24 Systems%20and%20the%20future%20of%20 billion), Bill & Melinda Gates Foundation (US$5 farming.pdf. billion), and International Fund for Agricultural 16 An article noted that Côte d’Ivoire had passed Development (US$3 billion). See: “More Than 3 t/ha. The data have since been revised down- US $30 Billion In Commitment To African ward, but the analysis remains roughly the same Agriculture.” Press Release, September 8, 2016. (McArthur 2015). https://www.agrf.org/stories-of-impact/more- 17 See: Food Fortification Initiative, “Côte d’Ivoire.” than-us-30-billion-in-commitment-to-african- http://ffinetwork.org/about/stay_informed/ agriculture/. releases/images/Rice_Cote_dIvoire.pdf . 18 Vagaries in weather, government support, and References market conditions can trigger a rapid downturn in agricultural production. Poor rainfall combined African Development Fund. 2006. Kimira Oluch with recent market changes, such as reduced Small Holder Farm Improvement Project, Appraisal funding, low seed supplies, and falling market Report. https://www.afdb.org/fileadmin/uploads/ prices, caused rice production in Côte d’Ivoire to afdb/Documents/Project-and-Operations/ drop by 27 percent in the 2016/17 growing year. 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World Bank, Washington, Agricultural Products for Smallholder Markets DC. http://www.worldbank.org/en/news/fea- in Sub-Saharan Africa: Trends, Opportunities ture/2015/11/10/investments-in-new-technolo- and Research.” In How Can the Poor Benefit from gies-are-boosting-farmers-incomes-in-mali. the Growing Markets for High Value Agricultural ———. 2015b. “Poverty in Ethiopia Down 33 Percent Products? Cali, Colombia. http://www.fao.org/ Since 2000.” Press Release, January 20. World docs/eims/upload/210989/regional_ssa.pdf. Bank, Washington, DC. http://www.world- UCLouvain 2016. “Senegal: Using Big Data to bank.org/en/news/press-release/2015/01/20/ Anticipate Food Shortages.” https://uclouvain. poverty-ethiopia-down-33-percent. be/en/sciencetoday/news/senegal-anticiper-les- ———. 2015c. “World Bank Group Unveils $16 Billion penuries-alimentaires-grace-au-big-data.html. Africa Climate Business Plan to Tackle Urgent Veras, Otavio. 2017. “Agriculture in Africa: Potential Climate Challenges.” Press Release, November 24. versus Reality.” How We Made It in Africa, February World Bank, Washington, DC. http://www.world- 21. https://www.howwemadeitinafrica.com/ bank.org/en/news/press-release/2015/11/24/ agriculture-africa-potential-versus-reality/. world-bank-group-unveils-16-billion-africa- World Bank. 2007. World Development Report 2008: climate-business-plan-to-tackle-urgent-climate- Agriculture for Development. Washington, DC: challenges. World Bank. https://openknowledge.worldbank. ———. 2017. ICT in Agriculture (Updated Edition): org/handle/10986/5990. Connecting Smallholders to Knowledge, Networks, ———. 2013. “The World Bank’s Rwanda Economic and Institutions . World Bank, Washington, Update: Maintaining Momentum with a Special Focus DC. https://openknowledge.worldbank.org/ handle/10986/27526. EDUCATION Education 3 I. Some Gains, but Falling Behind developed countries, illustrating how large the gap is. Accordingly, addressing these massive challenges It is well established that improvements in educa- facing Africa’s education sector will mean taking bold tion are associated with long-term improvements in and innovative approaches. In Africa, only about one- economic performance (Barro 2001; Arias, Santos, third of young people make it to secondary school. and Evans 2017). Education links with economic development in three broad ways (OECD 2010). Sub-Saharan Africa has made great strides in boosting First, it improves the skills of the workforce, leading primary school attendance; gross enrollment ratios to greater productivity, and thus contributing to eco- are almost 100 percent (table 3.1). Much of the recent nomic growth. Second, it influences the capacity of increase was driven by donor support to achieve the the economy to develop new ideas and technologies. Millennium Development Goal of universal primary Third, it serves as a means of spreading the knowledge education by 2015.1 It will be more difficult for the needed to apply innovative ideas and make use of region to achieve the new Sustainable Development new technologies. Having a more educated workforce Goal of free universal secondary education by 2030.2 enables public and private firms to take advantage of In 2014, Sub-Saharan Africa’s gross secondary enroll- new economic opportunities, leading to improved ment rate was 43 percent, 22 percentage points below performance (Jones 2001). Economic growth leads the next lowest region and 34 percentage points to higher national wealth, which increases resources below the world average. This is a much bigger gap and opportunities for education. The goal of any edu- to close than achieving near universal primary edu- cation system is to equip youth with the numeracy, cation, yet there are relatively few initiatives to deal literacy, and wider skills needed to unlock their latent with the expansion of secondary school coverage potential, which will be required to generate economic (Majgaard and Mingat 2012). Most dire is the region’s growth and jobs. gross tertiary enrollment, which is 8.6 percent. Some experts reckon it needs to be almost double that Developing countries, and specifically in Africa, are to sustain current levels of economic development lagging in their education outcomes. A recent analysis (Diallo 2013). This has serious ramifications for argues that the gap in education levels between the producing sufficient college educated teachers, and “developed” and “developing” worlds can be closed has implications for innovation in the region, given only with disruptive changes. Winthrop (2016) esti- the strong link between university education and mates that on basic literacy and numeracy measures, innovative entrepreneurship (Mayhew et al. 2016). the average student in the developing countries scores There is an urgent need for radical change (Elletson on par with the lowest 8 percent of students in the and Burgess 2015). 35 36 Leapfrogging: The key to Africa’s Development? TABLE 3.1: School Enrollment (% of gross) Primary Secondary Tertiary Region 1980 1990 2000 2010 2014 1980 1990 2000 2010 2014 1980 1990 2000 2010 2014 Sub-Saharan Africa 76.9 72.5 81.6 96.6 98.4 18.7 23.4 26.3 40.2 42.7 2.1 3.2 4.4 7.9 8.6 World 96.9 99.9 98.5 105.3 104.1 49.6 51.4 60.1 70.8 76.4 12.4 13.7 19.0 29.3 35.0 East Asia & Pacific 108.5 118.8 105.9 109.4 105.4 46.0 44.4 63.0 81.5 87.9 5.4 7.4 15.5 27.8 39.1 Europe & Central Asia 103.4 103.5 102.9 102.4 103.3 87.0 90.9 94.6 97.9 106.0 27.7 32.4 45.1 61.5 65.1 Latin America & Caribbean 115.0 114.5 119.2 112.4 108.4 71.7 76.1 85.3 89.8 94.1 13.3 16.8 22.6 40.5 44.7 Middle East & North Africa 87.0 93.4 96.3 105.9 105.3 42.6 56.7 68.5 75.7 79.4 10.1 12.8 20.4 30.8 37.9 South Asia 77.9 87.0 91.4 107.5 109.1 26.9 35.9 43.1 58.9 64.8 4.5 5.4 8.2 15.9 20.8 Source: World Bank. The education systems in Africa face enormous chal- Given these diagnostics, it is not overstated to affirm lenges in increasing the number, motivation, and that Africa’s education systems need a rapid fix in quality of teachers. For example, nearly 42 percent quantity and quality. Education in Africa must leap of all instructional time in Kenya is lost because of forward to catch up with the transformation of labor teacher absenteeism from the classroom (WEF 2015). markets. The changing nature of jobs and life in the Further, there is a skill shortage, with about 35 percent 21st century means that, although traditional ways of of public school teachers displaying mastery in the educating children may have worked in the past, there subjects they teach. The limitations of teachers will is no guarantee that it will continue in the future. The implicitly be reflected in learners’ performance. Across employment landscape is rapidly evolving. In many the region, only three in four adults who completed countries, the most in-demand occupations did not six years of schooling can read. There are wide differ- exist a decade ago. It is estimated that 65 percent of ences among countries, suggesting that in many, the children currently entering primary school will ulti- quality of student learning in primary school should be mately end up working in new job types that do not improved before increasing the school cycle (Majgaard yet exist (WEF 2016). As such, there is a pressing need and Mingat 2012). to transform Africa’s education system and equip stu- dents with the right skills for tomorrow’s labor market. The composition of educational attainment has changed substantially over the past 60 years. The share One of the ways Africa’s education system can be of the population ages 15 years and older who attended transformed is through innovation and technology, secondary school increased more than fivefold, from which are often linked. Examples include using solar 5 to 26 percent (figure 3.1). However, around a third power tablets to teach math to primary school chil- of those ages 15 and over are still without education. dren in Sudan, and collecting school administrative Overall progress in Africa has been marked by lower information in Peru using mobile phones to improve levels of secondary and tertiary attainment compared decision making (CEI and UNICEF 2016). In other with other regions. Efforts need to be devoted to edu- cases, innovation may be as straightforward as a cating those who never went to school or dropped out, community-oriented initiative training mothers to and a culture of lifelong learning should be instilled. assist with pre-primary school education in Ghana, or Education 37 FIGURE 3.1: Educational Attainment (population ages 15 and over) Sub-Saharan Sub-Saharan Africa Africa South Asia South Asia Middle East and Middle East and North Africa North Africa Latin America & Latin America & the Caribbean the Caribbean Europe & Europe & Central Asia Central Asia East Asia & East Asia & the Pacific the Pacific 0 20 40 60 80 100 0 20 40 60 80 100 No schooling Primary Secondary Tertiary No schooling Primary Secondary Tertiary Source: Adapted from Barro and Lee 2013. Note: Education levels refer to attended and not necessarily completed. a comprehensive approach to improving literacy and Education, technology, and innovation are co- learning in Brazil through teacher training, parental dependent. Although technology and innovation engagement, and the use of assessment data. may facilitate a leap in education growth, education makes it possible for innovation and technological Technology has the potential to alter education by development to take place. Innovation and technology extending the learning space beyond classrooms and by themselves are not a panacea and cannot fix poor schools to help hundreds of millions of children stuck policy and other contextual issues. But innovations in dismal classes (The Economist 2017). The Internet can trigger a new approach and, if successful, create is a cross-cutting enabler for education, providing significant change through scaling up. Technology unparalleled access to information and facilitating con- can supplement a lack of resources through remote nections to educational resources, virtual labs, ideas, online learning, but it requires knowledgeable teachers and people (Internet Society 2017). The Internet opens to know how to leverage and maximize its benefits. a way of exponentially expanding the physical limits Success will depend on technology used at the service of the school, giving students and teachers access to of teaching and not the other way around. Educational online learning resources from around the world. technologies should complement existing and emerg- Students can use technologies to access courses not ing pedagogical approaches (WEF 2015). offered at their school; rural students can complete their studies without leaving their communities; and There are a growing number of innovations and digi- adults can benefit from a more flexible study schedule. tal interventions in education. However, many are The potential uses of information and communications recent and often pilots. The challenge for Africa will technology (ICT) in education are not limited to the be to know which are worth adopting and which can classroom (Trucano 2016). Digital technologies have be used at scale (CEI and UNICEF 2016). And the the potential to improve the monitoring of various region faces the major challenge of providing adequate dimensions of a national education system, which infrastructure for digital technologies. Electricity is a valuable instrument for implementing a systems availability, which is an essential prerequisite for approach to education reform. computers and Internet access, varies widely across 38 Leapfrogging: The key to Africa’s Development? FIGURE 3.2: Schools with Electricity and Computers, 2012–15 a. Lower secondary schools with access to electricity (%) b. Secondary schools with access to computers (%) Mauritius Botswana Botswana Mauritius Rwanda Rwanda Lesotho Zambia Gambia, The Gambia, The Cameroon Malawi Zambia Niger Niger Madagascar Madagascar 0 20 40 60 80 100 0 20 40 60 80 100 Source: Adapted from United Nations Sustainable Development Goals Indicators. African schools (figure 3.2, panel a). There is also This section describes experiences on which Africa wide variation in the availability of digital technologies can draw to address these challenges. The experiences (figure 3.2, panel b). For example, almost all second- include examples of how learning outcomes improved ary schools in Botswana and Mauritius have access rapidly in Vietnam, and how all teachers in Bhutan to computers, compared with less than a fifth of the now receive ICT training. Another example is China’s secondary schools in Zambia, Madagascar, and Niger. experiences with educational exploration, innovation, reform, and development (box 3.1). Africa provides several examples, such as a regional approach to the Leapfrogging School Enrollment, II.  development of online learning in higher education, Educational Technology, and Outcomes rapid increases in school enrollment in São Tomé and Príncipe, and quick provision of electricity and When most African countries gained independence in Internet access to primary schools to enable an inno- the 1960s or later, they did not reinvent the wheel; they vative interactive math tool in Kenya. adopted and adapted systems from the former colo- nial powers. This is an instance of leapfrogging that delivered early, much-needed skills for African states. Vietnam Although most of the countries have not reached uni- versal education, they have achieved remarkable gains, Vietnam’s progress in education over the past 20 years considering that at independence all sectors required has been remarkable. Despite having the lowest gross major buildup. However, recent reports from Africa, domestic product (GDP) per capita among the coun- as well as other developing regions, show an alarming tries that participated in the Program for International level of poor learning. Delivering quality learning to Student Assessment (PISA),3 Vietnam scored higher all is constrained by resource limitations that make it than the Organisation for Economic Co-operation difficult to expand education systems while maintain- and Development (OECD) average and outperformed ing quality. Student-teacher ratios have grown; school many developed economies (figure 3.3). Vietnam’s monitoring has deteriorated; and professional teacher PISA score was more than 100 points greater than the development has stalled. average of other developing countries taking the test Education 39 PISA 2012 Results Compared FIGURE 3.3:  Bhutan with GDP per Capita 650 In Bhutan, an innovative project was launched with 600 the goal of assisting Bhutanese teacher education PISA math mean score, 2012 China 550 institutions in providing trainee teachers with skills Vietnam in ICT and how to use it in the classroom. The coun- 500 USA Norway try has two teacher education institutions and, before 450 2000, neither offered ICT training. The Singapore 400 Indonesia International Foundation, a nonprofit foundation, 350 Peru initiated a project in 2000 to assist Bhutan’s Ministry 300 of Health and Education with integrating ICT into its $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 education system. The project aimed to close the gap between low ICT skills among pupils and the grow- GDP per capita, PPP, 2012 ing adoption of ICT technology in the workplace. The Source: Adapted from data from the Organisation for Economic project ran in two phases during 2001–07, contrib- Co-operation and Development and World Bank. Note: GDP = gross domestic product; PISA = Program for Interna- uting to a tremendous increase in ICT skills among tional Student Assessment; PPP = purchasing power parity. teachers (Wong 2008). Teachers went from knowing nothing about computers, to being able to design web pages. The project contributed to a radical switch in (Parandekar and Sedmik 2016). Experts were particu- pedagogy, from the conventional teacher-centered larly surprised that, despite being from a developing approach to more collaborative models. The project country with low GDP per capita, Vietnamese students also benefited from being designed in two phases, so obtained such high results. the lessons from the first could be incorporated into the second. Today all trainee teachers in the country The government has long recognized education as a are taught ICT skills, with the focus shifting to using national priority, and invested early in schools and digital technologies for teaching and learning (Ministry teacher quality. It developed and enforced minimum of Education 2015). quality standards for schools and professionalized its teaching force, setting standards around content Africa knowledge, skills, and behavior. Vietnam was also an early adopter of standardized assessments of lit- The African Virtual University (AVU) has been at the eracy and numeracy. Other factors underpinned the forefront of using online learning in the region. AVU substantial progress in Vietnam’s education system, was initially launched in 1997 as a World Bank proj- including significant public and private investment ect to increase access to higher education and training in education, as well as strong political and parental using digital technology. Headquartered in Nairobi, commitment. Education financing grew from 7 per- Kenya, with a regional office in Dakar, Senegal, AVU is cent of the national budget in 1986, to 20 percent today an intergovernmental organization of 19 African in 2008. The country also has an outward-looking countries. Its network connects 27 institutions across approach in learning and adapting best practices from Anglophone, Francophone, and Lusophone African developed countries, such as the Republic of Korea countries offering degree, diploma, and certificate and Singapore. A central lesson of this success story programs delivered through online, face-to-face, and is the will to reform, measure outcomes, and change blended modes. One of AVU’s flagship projects is the what does not work. development of open educational resources (OER), 40 Leapfrogging: The key to Africa’s Development? Box 3.1: Key Transformations in the Chinese Education System China has long recognized that it must rapidly deliver in higher education were introduced to accelerate the skills that are crucial for its economic develop- the reform of the tertiary sector in China. Aiming at ment. For almost four decades, China’s education building first-class universities and scientific research system has experienced stages of exploration, innova- institutes, China’s education system has developed tion, reform, and development. The Chinese experi- high-quality talent and encouraged innovation and ence in the transformation of its education system can the conversion of scientific and technological knowl- be summarized in five major thrusts. edge to economic productivity. Changing the Education Model to Coordinating Market Demand and Supply, Accommodate Economic Development and and Restructuring and Innovating the National Conditions Education Industry In the early days of economic reform, major industries The education sector focuses on a combination of were underdeveloped, and all types of professional voluntary reform on the supply side and incentive talent were in high demand. Instead of sticking to the and compensation mechanisms. Education training traditional education model, the central government is adjusted to meet market demand. Synergy among invested in the development of skills in key areas to academic freedom, university autonomy, and depart- accommodate the course of economic development. mental supervision and administration is advocated. To ensure the long-term sustainability of the education There is a balance between the development of all- system, there were strict evaluations of graduates and round and specialized talent. Scholars are encouraged scientific research personnel from higher education to develop original theories and textbooks. Large, colleges and scientific research institutions. Bachelor, medium, and small colleges and research institutions master, and doctoral degrees were set up and the are committed to updating teaching ideas, adjusting posts of professor, associate professor, and senior teaching theories, and improving missions to adapt lecturer were established in colleges. Professional to social and economic development. and technical titles, such as national research fellow and senior engineer, were established in scientific Channeling More Fiscal and Social Resources research institutions. Efforts were made to encourage into Education and Increasing Investment in intellectuals to improve their professional knowledge Rural Areas and promote the development of scientific talent, In the course of developing the education sector, the to improve the academic level of all disciplines and central and local governments have increased their promote the development of education and scientific support for and investment in poverty-stricken areas research. and regions lagging in education. The concurrent development of urban and rural education and com- Learning from Other Countries to Orient bination of macro and micro policies helps achieve Higher Education to Global Demand balance in education development between regions, China’s education system has been committed to and promotes the overall development of the edu- a combination of traditional and imported meth- cation sector. According to the National Bureau of ods. Experts from developed countries, such as the Statistics, since the introduction of economic reforms, United Kingdom, France, Germany, the United States, the growth of China’s investment in education has and Japan, and the experiences of other countries remained higher than its gross domestic product (continued on next page) Education 41 Box 3.1: Key Transformations in the Chinese Education System (continued ) (GDP) growth. In 2012, the proportion of education development and not vice versa. Education and expenditure in GDP exceeded 4 percent for the first economic development are interdependent, which time. means that economic development provides a mate- rial guarantee for education and education provides Promoting Investment in Education as a intellectual support for economic development. Prerequisite for Economic Development China’s experience indicates that investments in edu- Evidence from China shows that education devel- cation and economic transformation should be made opment is the prerequisite for rapid economic simultaneously. started in 2011 (Diallo, Thuo, and Wright 2013). AVU Primary schools were also provided with Internet access is the largest creator of online higher education content through a range of initiatives and technologies, includ- in Africa, with more than 200 OER courses that are ing fiber optic, mobile broadband, and satellite.6 A sepa- used not only on the continent, but also overseas. AVU rate program financed by the universal service fund of participates in the OpenCourseWare Consortium, the Communications Authority of Kenya, is providing which is a group of more than 200 leading higher Internet access in all secondary schools.7 The Kenya education institutions from around the world collabo- Education Network (KENET), which was previously rating to create shared open educational content. More responsible for connectivity of the country’s higher edu- than 63,000 African students have benefited from cation system, has seen its mandate expanded to coor- AVU since its inception.4 Distance education offers dinating the various public and private sector initiatives an attractive supplement for boosting Africa’s higher for providing Internet access in primary and second- education training, given the inability of universities in ary schools.8 Around 70 percent of Kenyan secondary the region to increase physical infrastructure rapidly. schools are within 20 kilometers of a higher education location, meaning that these high schools could leverage Kenya provides an example of how quickly electricity the Internet connectivity of these anchor institutions. and Internet access can be deployed even to remote rural schools to enable an innovative online learning More than 90,000 teachers in Kenya have been trained product. For the past few years, the Kenyan govern- in delivering digital learning. The Digital Learning ment has devoted significant resources to enhancing Program (DLP) is the umbrella program under which ICT access and online learning in public primary and all primary schools are being electrified and provided secondary schools. As a precursor to facilitating digital with Internet access and online learning devices. More learning in public primary schools, the National Public than 18,000 primary schools have received e-learning Primary Schools’ Electrification Project was launched devices since the DLP launch in May 2016 (figure 3.4, in July 2013. Over the next three years, more than panel b).9 For online learning content, one initiative is 12,000 mainly rural primary schools were connected iMlango, launched in 2014 by the Ministry of Education, to electricity using grid or off-grid solutions, raising with support from the United Kingdom Department for the proportion of schools with electricity from 43 International Development and several technology and percent in 2013, to 95 percent by June 2016 (figure courseware partners. iMlango is a learning platform that 3.4, panel a).5 uses technology to help improve education outcomes. 42 Leapfrogging: The key to Africa’s Development? FIGURE 3.4: Electrification and e-Learning Devices in Kenyan Primary Schools a. Public primary schools with electricity (%) b. Public primary schools with e-learning devices (%) 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 June 2013 June 2016 June 2013 June 2016 Source: Adapted from Ministry of Energy and Petroleum and Kenya ICT Authority. It features an online mathematics courseware and data São Tomé and Príncipe provides an example of rap- collection system that adapts to the learning level of idly leapfrogging secondary education enrollment individual students, while at the same time monitor- above world levels. The government developed a ing student progress. Within two years, iMlango was plan, outlining strategies for the education sector with introduced in 205 primary schools in four counties, the objective of the government providing 12 years enrolling around 150,000 pupils. One distinctive aspect of free education to all children. The country had of the project is real-time monitoring of attendance and already achieved universal primary enrollment, with individual progress in math (Shome 2016). The project a significant number of children going to secondary. has benefited teachers by providing e-learning tools This was manifested through an increase of almost to support the curriculum, generating new ideas, and 50 percentage points in gross secondary education encouraging sharing among the teaching community. enrollment between 2003 and 2016 (figure 3.5, panel The project uses a train-the-trainer model, whereby the a). This increase was stimulated by the government’s first batch of teachers learning how to use the application prioritization of the education sector, establishing trains others in their respective schools. The project has the preconditions through an increase in resources: affected local communities by providing Internet access the proportion of public expenditure for education during off-school hours. There is anecdotal evidence increased from 2.7 percent of GDP in 2002, to 8.8 of parents reporting that their children have shown percent by 2010 (World Bank 2013). There has increased enthusiasm to attend school (Ndiku and Mwai been ongoing computerization of secondary schools 2015). However, despite the real-time data collection, through corporate social responsibility programs and there has been scarce dissemination of the impact of investments from proceeds of a telecommunication the platform on math performance. One reason is the license award. Today, almost all secondary schools relative novelty of the intervention. Another reason is have broadband Internet access. São Tomé and that although ICT can complement teaching, there are Príncipe has the second highest Internet penetration underlying contextual conditions in Africa, such as among youth compared with other African coun- highly variable and often volatile learning environments, tries where similar data are available. São Tomé and affecting the impact of the introduction of digital tech- Príncipe has the best gender parity in youth Internet nologies in education (Mubeen 2016). use (figure 3.5, panel b). Education 43 FIGURE 3.5: Leapfrogging with Equality in São Tomé and Príncipe a. School enrollment, secondary (% gross) b. Internet use (% of ages 15–24) 100 60 3.5 90 50 3.0 80 2.5 40 70 2.0 60 30 1.5 50 20 1.0 40 10 0.5 30 20 0 0.0 São Tomé and Príncipe Swaziland Zimbabwe Guinea-Bissau Mauritania Congo, Rep. Cameroon Mali Benin Malawi 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 São Tomé and Príncipe World Sub-Saharan Africa 2016 Internet use (left) Difference (Men/Women) (right) Source: Adapted from World Bank and UNICEF. Note: Panel b refers to multiple indicator cluster surveys conducted in 2014 and 2015. Establishing the Preconditions for III.  the private sector, for the introduction of technology Leapfrogging Education Outcomes or collaboration on industry skills training (box 3.2). and Skills The private sector could play a key role by investing in education and infrastructure, facilitating digital learn- Although education in Africa faces challenges, the ing throughout the continent. This will entail reducing examples of leapfrogging present potential for the regulatory barriers that constrain private sector invest- continent to improve outcomes and skills quickly. To ment in the sector. Although this challenge must start enable rapid educational transformation, the region with governments’ efforts to reform, there is much for needs to create the necessary preconditions. the private sector to gain by investing in support of the public sector in delivering skills. Forming Partnerships Deciding Which Innovations and All the leapfrogging examples feature partnerships. Technology Interventions to Scale The partnerships include intergovernmental agree- ments, such as AVU, as well as bilateral cooperation, Not all education innovations are effectively impact- whether formalized as projects or for one country to ful, transferable, and scalable. There is no shortage of learn from other nations’ successful experiences in edu- educational technology examples around the world, or cation. This precondition points to the need for African in the Africa region. The key question is whether they governments and education ministries to collaborate are addressing the right problems and most impor- more closely with each other10 and with other coun- tant challenges. A critical approach is required when tries outside the region to share scarce resources, learn reviewing global best practices and innovations in innovative educational practices, and apply them on a education as relevant to the African context. For opti- large scale. Another promising area is partnerships with mal leveraging of innovations, it is critical that what 44 Leapfrogging: The key to Africa’s Development? works be identified, tested, and potentially scaled. An in 2003 and funded by a 2 percent levy on telecom impactful and scalable education innovation should operator revenue. At RCDF’s inception, no govern- be assessed by four characteristics: (a) novelty and ment secondary school had a computer laboratory; variation; (b) impact on equity, learning outcomes, by 2015, 1,067 government secondary schools had a and education systems; (c) demand by users and computer lab, or 92 percent of the total.11 The cost of stakeholders; and (d) potential to match the scale of the Internet can be made more affordable for schools the problem (CEI and UNICEF 2016). by subsidizing service charges, a practice adopted in many countries (CISCO 2015). African countries can also tap the expertise of national education and Seizing the Window of Opportunity research networks, which were initially created for higher education, to assist with primary and secondary Introducing change in African education systems is school connectivity (Foley 2016). sensitively balanced between donor support, policy buy-in, infrastructure development, and sociopolitical stability. The speed at which innovations can be scaled Matching Skills to Jobs up depends on seizing this window of opportunity at the right moment without significant trade-offs. Local input Labor markets are rapidly evolving and many new and collaboration are key for making innovation work, skills are in demand. In Africa, there is a consider- particularly in the diverse and challenging sociopoliti- able imbalance between the demand for and supply of cal contexts of African countries. Strategic partnerships people holding medium-level and vocational qualifica- and strong institutional commitment and capacity can tions (WEF 2014). To improve matchmaking between catalyze buy-in for innovation (CEI and UNICEF 2016). jobs and skills, the public and private sectors must work closely together. Labor ministries need to seek the input of industry to forecast labor and occupation Deploying Digital Infrastructure requirements; ministries of education need to draw up sector plans to ensure proper skills are developed to The application of ICT in education necessitates digital meet this demand. Sources of innovation should be equipment and Internet access (and regular and reliable emphasized by encouraging entrepreneurship through electricity). There are many gaps in the region in the the creation of digital hubs and close collaboration provision of electricity, computers, and the Internet, between higher education and startups. as well as significant differences in availability across different levels of education (primary, secondary, and tertiary). To benefit from e-learning, schools require Teaching the Teachers broadband connectivity (CISCO 2015). Although governments need to invest resources in digital infra- Good students require good teachers. More effort is structure for schools, there are various options for tap- needed to train teachers and ensure that they are appro- ping additional funding. This includes drawing on the priately allocated throughout the education system. The resources of the private sector for school connectivity success in the use of ICT in education is contingent on projects and, as the case of São Tomé and Príncipe teachers’ abilities and skills in integrating these tech- illustrates, leveraging the corporate social respon- nologies into the teaching process (UNESCO 2008). sibility programs of telecommunications operators. Therefore, if teachers are not provided with ICT skills, Another example is Uganda’s Rural Communications it is unlikely that digital interventions will be effective. Development Fund (RCDF), which was established The case of Bhutan shows that all prospective teachers Education 45 Leveraging the Private Sector in Sub-Saharan Africa for TVET Skills Box 3.2:  Development Public-private partnerships in the region are underway In Uganda, a Skills Development Facility project will to introduce job-related technical and vocational edu- promote employer-led, short-term training to address cation and training (TVET) designed to meet the short- prevailing skills imbalances in the formal and informal term needs of employers. One example is the Ghana sectors, starting with agriculture, construction, and Industrial Skills Development Center (GISDC), which manufacturing, before spreading to other sectors was launched in 2005 to provide training in mechani- (World Bank 2015). The scheme is to be implemented cal, electrical, and process engineering. The seeds for through a grant facility mechanism to be co-financed this initiative were sown when TexStyles Ghana found by the private sector, through a matching grant. Firms that other factories shared its problem of being unable that take on students for internships, especially in to find and retain employees who could service their vocational studies, will receive a 100 percent grant. machines. As a result, factories often had to fly in trou- bleshooters from abroad. To overcome the problem, In Nigeria, the government has started to process the Governments of Ghana and the Netherlands joined the certification and accreditation of private provid- forces with the Association of Ghana Industries to set ers that meet certain criteria (including a governance up GISDC. Located on the premises of Tema Technical structure that includes industry representation) to Institute (a government facility) but run independently, qualify as Vocational Enterprise Institutions (target- GISDC is now operational, with a governance arrange- ing those with nine years of schooling) or Innovation ment that includes industry representatives on its Enterprise Institutions (targeting those with 12 years decision-making board and several firms among its of education).a These institutions provide practical partners. The public-private partnership has helped to training in target areas, such as telecommunications, address the gap in skills provision; this is essential for computer hardware engineering, refrigeration and the private sector to flourish (GTZ 2009). air conditioning, welding and fabrication, petroleum geosciences, building technology, film and TV pro- South Africa’s Middelburg Higher Technical School has duction, paralegal studies, fashion design, hospitality, established successful partnerships with companies that and tourism. invest in the school, provide training after school hours, and consider learners favorably for employment (Center Many of the initiatives incorporate lessons from new for Development and Enterprise 2012). For example, models of training, including coherence with the Toyota Motor Company provides equipment for train- country’s economic development strategy. Another ing motor vehicle mechanics, has developed a modular commonality is that training institutions, at least to training course, and appoints teachers to provide train- start, are outside the traditional education and training ing outside school hours. Learners pay an additional system and thus more able to react quickly, flexibly, fee for the training, and teachers are paid from these and innovatively to industry needs. Another critical funds. The learners do the first modules in the series aspect is arrangements that encourage close involve- and once they complete their schooling, can apply for ment by industry in defining training curricula, provid- employment at Toyota, where they can complete the ing equipment and trainers, and exposing students remaining modules as employees. Another example and faculty to industry-driven projects (for example, is the Samancor mining company, which operates an internships, work placements, and so forth). after-hours program at the school providing training in welding, fitting and turning, and skills needed by electri- a See “Vocational Enterprise Institutions (VEIs) and cians. The company pays Middelburg Higher Technical Innovation Enterprise Institutions (IEIs)” at: https://www. School teachers to provide the training. nbte.gov.ng/iei&vei.html. 46 Leapfrogging: The key to Africa’s Development? can receive digital training by including ICT skills as development of relevant local content. At the same part of the curricula in teacher training colleges. time, over half of Africa’s adults never attended school or have only a primary school education. Effort is needed to reach this group so they are not left further Developing a Policy behind. The efforts should include formal and informal training initiatives, including teaching basic computer For innovative ideas and digital technologies to be skills. A recent initiative could have widespread rami- scaled up and successful requires a robust education fications for the continent: Rwanda plans to use 5,000 sector policy, strategy, and plan. A clear government young “digital ambassadors” to train five million adults vision of the education sector would identify how it fits in computer literacy (Wong 2017). in with national goals, the initiatives for the sector to achieve those goals, and the expected outcomes. This vision provides clarity on how innovation and digital IV. Future Research technologies fit into education goals and outcomes. And having a vision enhances the chances of scaling up One of the most significant obstacles in gauging the successful pilots, while minimizing initiatives that are scope and impact of education in Sub-Saharan Africa driven by donors or the private sector that stop when is the lack of systemic data collection. There is no funding runs out. education system–related data collection process in some countries in the region (UIS 2015). There are Adequate capacity and resources are essential, since many studies of technology adoption in Africa, but adopting innovation and ICT in education brings most describe the technologies deployed rather than new requirements and costs. Ideally, there should the impacts, and many have been small pilots that also be an ICT for education strategy that outlines have not been scaled up. Data on ICT inputs alone why and how technologies benefit the education are insufficient for understanding their effects on stu- system; it should include initiatives, timetables, and dent outcomes. Additional data on usage are essential, costs. Strategies should be developed along a multi- especially data on how, when, and how much teach- stakeholder approach, including among ministries, ers and pupils use digital technologies. There is also a to reduce education technology silos. The strategies lack of impact evaluation to provide insight into how should also include the input of teachers, parents, ongoing technological adoption and innovation have students, donors, and the private sector. Monitoring affected education outcomes. Furthermore, there are and evaluation are critical to track the implementation few feasibility studies to compare the cost-effectiveness of digital technologies, to reduce inequities as well as of ongoing projects. assess what works in improving outcomes. Sub-Saharan Africa’s skills balancing act requires countries to face a trade-off between skills that maxi- Investing in Lifelong Skills mize productivity growth (for example, technical skills for catalytic sectors) and skills aimed at fostering inclu- A culture of ongoing skills development needs to be sion (for example, basic skills to improve livelihoods). instilled across the continent. This is essential with Moreover, Sub-Saharan African countries must find constantly evolving economies and demand for new the right balance between investing in the skills for skills. Online learning platforms ease the task of con- today’s needs and those for future requirements. There tinuous skill development and improvement. The is a need for more research to inform on the right mix platforms require access to digital technologies and of investments at different stages of development. Education 47 Endnotes Arias, Omar, Indhira Santos, and David Evans. 2017. The Skills Balancing Act in Sub-Saharan Africa: 1 http://www.un.org/millenniumgoals/education. Investing in Skills for Productivity, Inclusion, and shtml. Adaptability. Washington DC: World Bank. 2 http://www.un.org/sustainabledevelopment/ Barro, Robert J. 2001. “Human Capital and Growth.” education/. American Economic Review 91 (2): 12–17. 3 Launched in 2000, PISA is the OECD’s bench- doi:10.2307/2677725. marking tool to assess the achievement and appli- Barro, Robert, and Jong-Wha Lee. 2013. “A New cation of key knowledge and skills of students at Data Set of Educational Attainment in the World, age 15 years. The assessment is conducted every 1950–2010.” Journal of Development Economics three years and tests proficiency in mathematics, 104: 184–98. reading, science, and problem solving. CEI and UNICEF 2016. “Journey to Scale: 4 See “Facts and Figures” at: http://www.avu.org/ Accompanying the Finalists of the Innovations in avuweb/en/avu-at-a-glance/facts-and-figures/. Education Initiative”. http://www.educationinno- 5 See “Primary Schools Electrification Project” at: vations.org/sites/default/files/Journeys%20to%20 http://www.energy.go.ke/index.php/projects/242- Scale%20-%20Full%20Report.pdf primary-schools-electrification-project.html. Centre for Development and Enterprise. 2012. 6 See Avanti, “Project iMlango” at: http://www.avan- Vocational Education in South Africa: Strategies for tiplc.com/wp-content/uploads/2016/12/EDU-CS- Improvement. http://www.cde.org.za/vocational- Project-iMlango.pdf. education-in-south-africa-strategies-for-improve- 7 See: “Authority to Connect All Public Secondary ment/. Schools to High Speed Internet” at: http://ca.go.ke/ CISCO. 2015. School Connectivity for the 21st Century. index.php/what-we-do/94-news/417-authority- https://alln-extcloud-storage.cisco.com/cis- to-connect-all-public-secondary-schools-to-high- coblogs/School-Connectivity-English-Final- speed-internet. Compressed.pdf. 8 See “The KENET Schools Connectivity Initiative Diallo, Bakary. 2013. “The Future Direction of Virtual (SCI)” at: http://schools.kenet.or.ke. Universities: A Perspective from the African 9 See “Milestones Achieved” at: http://icta.go.ke/ Virtual University.” Presented at the MIT Linc digischool/milestones/. Conference, Cambridge, MA. http://linc.mit.edu/ 10 An example is the African Ministerial Forum on linc2013/presentations/LINC2013Diallo.pdf. ICT Integration in Education and Training. See Diallo, Bakary, Catherine Thuo, and Clayton Wright. African Development Bank (2016). 2013. “Approaches to the Production and Use of 11 See “10 Years of RCDF” at: http://ucc.co.ug/files/ OERs: The African Virtual University Experience.” downloads/10%20YEARS%20OF%20RCDF.pdf. In Open Educational Resources: Innovation, Research and Practice, 91–104. Vancouver: Commonwealth of Learning. https://oerknowledgecloud.org/ References sites/oerknowledgecloud.org/files/pub_PS_OER- IRP_CH7.pdf. 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Tome-and-Principe-Second-Phase-of-Quality- ———. 2015. New Vision for Education: Unlocking the Education-for-All-Project. Potential of Technology. http://widgets.weforum. ——— . 2015. Project Information Document: org/nve-2015/. Skills Development Project. http://doc- ———. 2016. The Future of Jobs: Employment, Skills uments.worldbank.org/curated/ and Workforce Strategy for the Fourth Industrial en/855051468335516560/pdf/PID-Appraisal-Pri Revolution. http://www3.weforum.org/docs/WEF_ nt-P145309–02–25–2015–1424884623658.pdf. Future_of_Jobs.pdf. ENERGY Energy 4 Abundant Resources but Insufficient I.  with access is slowly rising, only 37 percent of the Capacity population in Sub-Saharan Africa had access to electricity in 2014 (figure 4.2, panel a), which is Energy capacity and use in Africa are the lowest in far less than in any other developing region (figure the world. Although the continent’s power generation 4.2, panel b). As a result, more than 600 million capacity grew 32 percent between 2010 and 2016 people in Sub-Saharan Africa—almost two-thirds (figure 4.1, panel a), at 175 gigawatts it is the lowest of the population—live without electricity. Most of among all developing regions (figure 4.1, panel b) (EIA them are in rural areas where there is no grid-elec- 2016). Africa accounts for 16 percent of the world’s tricity, and expansion is financially and logistically population, but has only 2.8 percent of the world’s impractical (Eberhard et al. 2011). Without radically power generation capacity. Some 25 Sub-Saharan increased energy production, it will be difficult African countries face an energy crisis.1 for Sub-Saharan Africa to achieve the Sustainable Development Goals for energy, including “ensure Household connections to the power grid are universal access to affordable, reliable, and modern scarce in Sub-Saharan Africa. Although the share energy services” by 2030.2 FIGURE 4.1: Installed Generating Capacity a. Africa, installed generating capacity (GW) b. Installed generating capacity (GW), 2016 200 172 175 180 161 Asiaa 367 160 141 149 133 135 140 Central and 292 120 South America 100 80 Middle East 271 60 40 20 Africa 175 0 2010 2011 2012 2013 2014 2015 2016 0 100 200 300 400 Source: Adapted from EIA 2016. Note: GW = gigawatts. a Excluding India and China. 53 54 Leapfrogging: The key to Africa’s Development? FIGURE 4.2: Access to Electricity a. Access to electricity (% of population), Sub-Saharan Africa b. Access to electricity (% of population), 2016 100 Latin America & 90 97 Caribbean 80 Middle East & 70 97 North Africa 60 East Asia & 50 97 Pacifiic 40 30 South Asia 80 20 10 Sub-Saharan Africa 37 0 0 20 40 60 80 100 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: World Bank. The lack of grid and off-grid electricity results in resources (Eberhard et al. 2011). The biggest poten- increased use of kerosene, candles, wood, and coal tial energy source is water. Over 90 percent of Africa’s for cooking and lighting in Africa. Use of these mate- economically viable hydropower potential, equivalent rials has serious health, safety, environmental, and to about one-tenth of the world’s total, is unexploited socioeconomic consequences, and disproportionally (Eberhard et al. 2011). Hydroelectric accounted for 13 impacts women and children (Mills 2016). More than percent of primary energy consumption in the region 3.5 million Africans die yearly due to pollutants or in 2016 (BP 2017). The largest sources of energy con- fires from liquid fuels for lighting and cooking (Akon sumption in the region are oil and gas (figure 4.3, panel Lighting Africa 2015). a). Although most Sub-Saharan African countries have thermal power stations, only a few use local oil and The weakness of the African energy sector constrains gas resources. Instead, most countries rely on imports, economic growth and development (Castellano et al. with a few exceptions (such as Nigeria and Angola). 2015).3 Electricity is a critical concern for businesses in Sub-Saharan Africa; after access to finance, electricity Sub-Saharan Africa accounts for less than 5 percent of is listed as the second biggest problem for enterprises global oil reserves (BP 2017). Gas reserves in the region, in the region.4 Although Sub-Saharan Africa is improv- mainly in Nigeria, make up less than 4 percent of the ing in some areas of its business environment, it is world’s total, and gas production is an even smaller pro- performing poorly in electricity. It takes an average portion (BP 2017). The only nuclear power station in of 130 days to get a new electricity connection, and the region is in South Africa, accounting for just 3 per- African consumers and businesses have the highest cent of South Africa’s primary energy consumption (BP duration of outages in the world (World Bank 2015). 2017). Geothermal has some potential in a few places, Relative electricity prices are by far the highest among such as the Rift Valley in Kenya. The continent has all regions, equivalent to almost 4,000 percent of gross abundant renewable energy resources, especially solar domestic product (GDP) per capita. and wind. Due to declining equipment costs, greater efficiency, and innovative business models, solar in Although Sub-Saharan Africa faces an energy crisis, particular is rapidly expanding as an attractive solution it has abundant low-carbon and low-cost energy for providing off-grid power in rural areas throughout Energy 55 FIGURE 4.3: Primary Energy Consumption, Africa a. Primary energy consumption, 2016, Africa b. Growth by source, 2015–2016, Africa Coal, 6% Renewables, 1% Renewables 16.6% Hydro electric, 13% Natural gas 4.9% Oil, 58% Hydro electric 3.4% Natural gas, 22% Oil 2.8% Source: Adapted from BP 2017. Note: The graphs exclude Algeria, the Arab Republic of Egypt, and South Africa. the region (McKibben 2017). Solar and wind renew- follow a different trajectory to boost its energy sector. ables are the fastest growing source of primary energy One challenge is the region’s large rural population. consumption on the continent (figure 4.3, panel b). Analysts used to believe that energy leapfrogging is a misconception and energy transitions in rural Africa needs huge investments to increase energy pro- areas were incremental processes that depended on duction. Compared with other sectors, power sector technical, organizational, and institutional factors investment needs are high: they are 4.5 times larger and the capacity to absorb technologies (Murphy than in the information and communications tech- 2001). Additionally, the context of rural areas, such nology sector and approximately double the invest- as low incomes and resistance to change, was seen as ment needs in the water, sanitation, and transport a barrier. sectors (Eberhard et al. 2011). It is estimated that Sub-Saharan Africa needs to invest US$41 billion a Four trends have emerged recently that are notice- year to meet the needs of its power sector, equiva- ably increasing the potential for leapfrogging in the lent to over 6 percent of GDP (Gratwick et al. 2016). energy sector. The trends are based on the confluence Although public utilities have traditionally been the of technological change that is dramatically (a) reduc- largest source of power generation in the region, the ing the cost of renewable energy, (b) improving the investment required exceeds the funding capacity of efficiency of appliances, (c) increasing the intelligence the public utilities, making private investment critical of power infrastructure through digital technologies, for expanding energy supplies. Private sector invest- and (d) enabling decentralized service provision. ment in the sector is increasingly channeled through Combining these factors with technology custom- independent power projects (IPPs), which have spread ization and innovative financing can radically effect throughout the continent and are present in 17 coun- socio-technical transitions to energy solutions (Relman tries (Gratwick et al. 2016). et al. 2010). Applying spatial-economic analysis to the intense changes that energy technologies have experi- Given that Africa is the fastest growing region in enced can help identify the least-cost rural grid, mini- GDP and population, there is increasing demand grid, and off-grid electrification options to end energy for energy to sustain such growth. Africa needs to poverty in Sub-Saharan Africa (Szabó et al. 2013). This 56 Leapfrogging: The key to Africa’s Development? will require complementary institutional, regulatory, Lighting Africa’s Impact as of FIGURE 4.4:  and financial innovation. December 2016 20,473,000a People in Africa who are currently meeting their basic electricity needs through off-grid solar products II. Power Leaps meeting Lighting Global Quality Standards 13,285,000 Quality-verified solar lighting products sold This section looks at leapfrogging experiences (that through local distributiorships in Africa since 2009 is, significant leaps in electricity production and access) through a regionwide initiative deploying 3,986,000 Metric tons of GHGs avoids in Africa; off-grid electricity, an IPP in Ghana, and Rwanda’s the CO2-equivalent of taking 841,977 cars accelerated electrification initiatives. Leapfrogging off the road for a year was triggered by innovations in technology, project Source: https://www.lightingafrica.org/about/our-impact/. design, and regulation. Note: CO2 = carbon dioxide; GHG = greenhouse gas. a Basic electricity needs are defined according to the Multi-Tier Framework as providing light for at least 1,000 lumen-hours / day and sufficient energy to keep a well-used mobile phone operational. Regionwide Initiative This result is based on products sold in the last 3 years only. Some of these users also enjoy additional energy services such as multiple light points or the ability to power a TV or a fan. The impacts were Lighting Africa is a World Bank/International Finance reported using a calculation favored by many in the industry: number of products sold x 5 (average household size), which would give a re- Corporation (IFC) initiative that was launched in sult of 66,425,000 people with access to a quality verified solar light. Kenya in September 2007. The initiative aims at supporting the global lighting industry to catalyze a market for off-grid lighting products tailored to the needs of African consumers. The program’s mission financing). The pilot provided valuable lessons that was to make affordable, environmentally sustainable, were used to adapt the design and implementation of durable, and safe lighting available to the masses. The the initiative. By 2016, the project had been deployed project design incorporated lessons from earlier IFC in 11 Sub-Saharan African countries, affecting almost and donor grant-based solar lighting projects. 21 million people (4 percent of those with access to electricity) (figure 4.4). The project aims to reach 250 Lighting Africa is considered innovative on two levels. million more people by 2030 (equivalent to 42 percent From a market development perspective, the project of those without access to electricity). transformed the solar lamp market in Kenya by mak- ing modern, good quality, and affordable lighting The project has also had important health, safety, and products available to the very poor. It also demon- environmental benefits, such as reducing toxic fumes strated the commercial viability and sustainability from kerosene lamps and paraffin, enabling children to of the approach to address the lighting needs of the study and do homework at night, and helping house- base of the pyramid, in contrast to donor-subsidized holds and small businesses to save money by reducing lending for the purchase of solar lamps. To achieve kerosene purchases (Independent Evaluation Group viability and sustainability, Lighting Africa considered 2016). The success of Lighting Africa has now spawned constraints along the entire supply chain (including Lighting Global, to spread off-grid, solar-based electric- market intelligence; business development support to ity to other regions. Innovation has also been triggered manufacturers and distributors; development of inter- by solar startups using mobile networks to manage national quality standards in product design, quality generators and mobile money for consumers to make testing, and certification; and consumer education and micro payments for use (Vodafone 2015). There were Energy 57 over half a dozen of these new solar utilities raising shareholders guarantee the loan, protecting the China venture capital of more than US$200 million in 2016, Development Bank against market risks. Fourth, the up from just US$19 million in 2013 (McKibben 2017). business model made economic sense, with tariffs recovering the cost of operating the plant. Sunon Asogli plays an important role in meeting Ghana’s power IPPs in Ghana demand, with the potential to supply nearly a fifth of the country’s power needs. The US$560 million proj- In 2005, the Ghanaian government promulgated an ect was the seventh largest private sector investment amendment to the Act governing the country’s main in the country.5 electricity utility, the Volta River Authority. The amendment, which was made in the context of the government’s power sector reforms, largely restricted Initiatives in Rwanda the Volta River Authority to the generation of elec- tricity. This created the opening for attracting private Although access to electricity remains low in Rwanda, sector investment into the energy sector through IPPs. at around half the Sub-Saharan Africa average in 2014, Sunon Asogli Power Plant, located in Tema, around it nonetheless grew over 300 percent between 2005 20 kilometers from Ghana’s capital, Accra, is one of and 2014, which is cited as an incredible achieve- the IPPs created by the reform. ment.6 The impressive growth is tied to the adoption of a new Electricity Sector Wide Approach by the Sunon Asogli Power Plant was the first power plant government in 2009. The Electricity Sector Wide project in Africa to be directly invested and oper- Approach had several novel features, including joint ated by a Chinese company. The project was jointly coordination, a specific timebound target (16 percent financed by the China Africa Development Fund (40 access to electricity by 2013), a prospectus to attract percent) and Shenzhen Energy Group (60 percent). investment, and strategies to reduce electricity costs In 2010, the 200-megawatt gas-fired generating units through technical standards and geospatial analysis. for phase I were put into commercial operation, with The sector-wide approach was operationalized through annual production of more than 1 billion kilowatt the Electricity Access Rollout Program, coordinated hours. The installed capacity of phase II, which started by the national electricity utility, and supported by generating power in March 2017, is 360 megawatts. several development partners. The electrification rate The construction of phase II was completed in less target was reached a year early, rising to 20 percent than a year, the fastest ever for a similar size project by 2014. The second phase of the Electricity Access in Africa (Energy China 2016). Rollout Program has an even more ambitious target, aiming for electrification of 70 percent by 2018, using Four main factors influenced the investment in the a combination of grid and off-grid solutions. A key Sunon Asogli Power Plant. First, with a stable politi- leapfrogging condition has been effective coordination cal environment and rapid economic growth, Ghana among stakeholders in planning, financing, and imple- was considered one of the most attractive African mentation (Malik, Banerjee, and Baringanire 2014). countries for foreign investment. Second, the govern- ment encouraged foreign investment, including 100 percent ownership in the power sector, to ameliorate III. Preconditions for Powering Africa a shortage of funding. Third, the project benefitted from cooperation with the China Development Bank, With abundant energy resources, there is considerable which financed the plant and the shareholders. The potential for increased power generation in Africa. 58 Leapfrogging: The key to Africa’s Development? More so than in other sectors, policy and regulatory expertise in forecasting demand and determining challenges are the main impediments to leapfrogging optimal supply options within the time constraint for in the region. Enabling leapfrogging in the African identifying projects, obtaining funding, and deploying energy sector will require modernization of institu- energy capacity. Ongoing updates are needed for plan- tions, regulations, and finance. ning software to ensure that it is relevant for chang- ing demand and costs; the plans need to be revised Market reforms are crucial for creating an attractive on a regular basis to adjust to market conditions.7 environment for investment. This includes a sector Planning should be neutral and, if it is entrusted to regulatory agency for oversight and instilling a trans- a utility, there should be oversight to ensure that the parent framework to attract investment (Gratwick et strategies represent the best outcome for the country. al. 2016). The regulator needs to create an enabling At the same time, plans should be flexible, with mul- competition environment to establish routes for invest- tiple options. The African nations that have attracted ment in the sector. The lack of funding for the power the most investment into their energy sectors have a sector in Africa is often because investment options range of policies and structures (Gratwick et al. 2016). are nonexistent rather than a shortage of capital. Appropriate skills are needed for planning that cross a Market entry in the sector can be facilitated through range of disciplines, such as engineering, law, meteo- the structural separation of generation, transmission, rology, finance, economics, and data analytics. and distribution, which is lacking on the continent (Gratwick et al. 2016). Improving the financial sustainability of public utilities in Sub-Saharan Africa is critical. This is particularly Another aspect of competition relates to the procure- important for the success of private sector investment ment of power projects. Competitive procurement through IPPs, since they rely on the “off-taker,” typi- increases transparency and lowers costs (Gratwick et cally a public utility, to get the power transmitted and al. 2016). Although tenders or auctions can be complex distributed. Improvements are needed in areas such to design compared with unsolicited or directly negoti- as governance, efficiency, and billing and collection ated contracts, the latter tend to have more drawbacks (Gratwick et al. 2016). Better collection, transparency, over time (for example, higher prices, contract dis- and dissemination are needed for metrics measuring putes, and opaqueness). The challenges of competitive electric utility performance to diagnose weaknesses procurement can be overcome through outsourcing to objectively (World Bank 2009). transaction advisors until sufficient national capacity is developed. Most African nations now have electric- Tariff policy is critical not only for the viability of power ity legislation that allows for the participation of the utilities, but also for attracting new investment in the private sector. Regulators need to ensure that the play- sector. The challenge is finding a model that balances ing field is level and guard against anti-competitive affordability and access with investment needs. Logic behavior of state-owned incumbents. They also need suggests that tariffs should increase with rises in con- sufficient resources—human and financial—and inde- sumption; yet, in countries in Sub-Saharan Africa, pendence. Skills are critical for effectively managing tariffs stay the same or even decline, making it impos- the complexities of the energy sector. sible for utilities to recover costs, let alone make future investments. According to a survey of top managers Energy sector planning is critical to ensure that invest- in the African energy sector, less than a third of the ment sustains economic growth on the continent and countries in the region had cost-oriented tariffs (PwC factor in the consequences of climate change and the 2015). The structure of tariffs, including the ratio of emerging potential of off-grid electricity. This requires fixed charges to consumption charges, also merits Energy 59 scrutiny. It should be ensured that fixed charges do not Sub-Saharan Africa. The recognition of climate change discourage demand, while at the same time recovering impacts and commitments in the Paris Agreement will some of the costs of building distribution networks to impose requirements on countries in the region in users. If subsidies are required, they need to be well areas such as reducing carbon emissions and carbon designed. Energy subsidies account for a significant trading. This would suggest even more of an impetus portion of government resources in the region, often to exploit clean energy, such as the continent’s vast benefit the richest, and create disincentives for main- hydroelectric potential. However, climate change tenance and investment (Alleyne and Hussain 2013). already seems to be affecting weather patterns in the region, triggering droughts, with ramifications for Capacity building is needed in climate change finance, waterpower. The rise of renewables, especially solar which is critical for the implementation of clean for off-grid electricity, has been somewhat unexpected energy solutions. Although billions of U.S. dollars and is changing the energy scenario for rural areas. have been raised globally for climate change, African Perhaps because these issues are relatively recent, there countries have faced difficulties accessing the funds is scarce literature about their impacts and how they and applying them to local needs. One challenge is will affect national energy strategies going forward. that although resources such as the Adaptation Fund and the Green Climate Fund can channel resources to Digital technologies have many applications in energy, national institutions, these institutions need to meet such as smart grids8 and smart metering. Mobile net- specific standards. Of the 45 official entities working works have been critical in the surge of off-grid solar with the Green Climate Fund, fewer than 10 are in systems being deployed across Africa. Mobile networks Africa (African Development Bank 2017). The Green provide machine-to-machine communications that Climate Fund is offering capacity-building support allow solar power generators to be controlled remotely through a readiness program, and development part- to check for malfunctions, install software updates, ners have similar initiatives. African countries can also and cut off the system when consumers do not pay learn from each other by sharing experiences with the (Vodafone 2015). Mobile money has also been instru- processes that national agencies have undertaken to mental for the off-grid business model, by allowing gain accreditation. remote rural users to make incremental payments for energy consumption (GSMA 2017). At the other end of the spectrum, some energy utilities are leasing the IV. Future Research spare (“dark”) fiber optic cable in their networks to telecommunications operators as an attractive side Clean energy goals and the recent rapid progress of off- source of revenue.9 There is scope for wider dissemi- grid electricity have changed the energy equation for nation of these experiences. 60 Leapfrogging: The key to Africa’s Development? Endnotes References 1 See: “Fact Sheet: The World Bank and Energy in Adom, Philip Kofi. 2011. “Electricity Consumption– Africa,” at: http://go.worldbank.org/8VI6E7MRU0. Economic Growth Nexus: The Ghanaian Case.” 2 http://www.un.org/sustainabledevelopment/ International Journal of Energy Economics and Policy energy/. 1 (1): 18–31. 3 Although there is a link between energy and eco- African Development Bank. 2017. “Enabling Direct nomic output, the direction is unclear. An analysis Access to Climate Finance in Africa.” News , of data in Ghana finds that increases in per capita January 23. https://www.afdb.org/en/news-and- income resulted in higher energy consumption, a events/enabling-direct-access-to-climate-finance- growth-led-electricity hypothesis (Adom 2011). in-africa-16662/. 4 See “Enterprise Surveys” at: http://www.enter- Akon Lighting Africa. 2015. “Addressing the African prisesurveys.org. Energy Challenge.” http://akonlightingafrica. 5 https://ppi.worldbank.org/snapshots/country/ com/wp-content/uploads/2015/12/BROCHURE- ghana. AKON-LIGHTING-AFRICA-EN.pdf. 6 World Bank. 2017. Rwanda – Renewable Alleyne, Trevor, and Mumtaz Hussain. 2013. Energy Fund Project. http://documents.world- “Energy Subsidy Reform in Sub-Saharan Africa: bank.org/curated/en/684571498183375303/ Experiences and Lessons.” African Departmental Rwanda-Renewable-Energy-Fund-Project Paper, 13/2. International Monetary Fund, 7 Including climate change factors such as tempera- Washington, DC. https://www.imf.org/en/ ture increase, rainfall variability, and carbon diox- Publications/Departmental-Papers-Policy-Papers/ ide emissions. See: CRIDF+, “Building Regional Issues/2016/12/31/Energy-Subsidy-Reform- Climate Resilience through Electricity Trading in-Sub-Saharan-Africa-Experiences-and- and Related Infrastructure.” http://www.sera.org. Lessons-40480. sz/images/RERA%20CRIDF%20Presentation%20 BP. 2017. Statistical Review of World Energy. http:// 25%20November%202015%20Swaziland.pdf. www.bp.com/en/global/corporate/energy-eco- 8 https://www.intel.com/content/www/us/en/ nomics/statistical-review-of-world-energy/down- energy/iot-smart-grid-paper.html. loads.html. 9 For example, Kenya Power earned K Sh 1 bil- Castellano, Antonio, Adam Kendall, Mikhail Nikomarov, lion (US$11 million) between 2010 and 2014 and Tarryn Swemmer. 2015. Powering Africa. from leasing fiber. By June 2014, it had installed McKinsey & Company. http://www.mckinsey. more than 1,800 kilometers of fiber optic on com/industries/electric-power-and-natural-gas/ high-voltage power lines to manage the national our-insights/powering-africa. power grid. The extra capacity is leased to tele- Eberhard, Anton, Orvika Rosnes, Maria Shkaratan, communications service providers. See “Kenya and Haakon Vennemo. 2011. Africa’s Power Earns Shs. 1 Billion from Fibre Optic Power Infrastructure: Investment, Integration, Business,” Press Release, June 19, 2014. http:// Efficiency . Washington, DC: World Bank. www.kplc.co.ke/content/item/246/kenya-power- http://documents.worldbank.org/curated/ earns-shs.1-billion-from-fibre-optic-business. en/545641468004456928/Africas-power- infrastructure-investment-integration-efficiency. Energy China. 2016. “Yu Zhengsheng Attends the Operation Inauguration Ceremony for Asogli Energy 61 Phase II.” Energy China, April 25. http://en.ceec. PwC. 2015. Africa Power & Utilities Sector Survey. net.cn/art/2016/4/25/art_138_1099791.html. http://www.pwc.com/rw/en/assets/pdf/pwc-africa- Gratwick, Katharine, Elvira Morella, Anton Adriaan p&u-sector-survey.pdf. Eberhard, and Pedro Antmann. 2016. Independent Rehman, Ibrahim Hafeezur, Abhishek Kar, Rob Raven, Power Projects in Sub-Saharan Africa: Lessons from Dilip Singh, Jitendra Tiwari, Rakesh Jha, Pramod Five Key Countries . Washington, DC: World Kumar Sinha, and Asim Mirza. 2010. “Rural Bank. http://documents.worldbank.org/curated/ Energy Transitions in Developing Countries: en/795581467993175836/Independent-power- A Case of the Uttam Urja Initiative in India.” projects-in-Sub-Saharan-Africa-lessons-from-five- Environmental Science & Policy, 13 (4): 303–11. key-countries. doi:10.1016/j.envsci.2010.03.012. GSMA. 2017. “Lessons from the Use of Mobile in Utility Szabó, S., K. Bódis, T. Huld, and M. Moner-Girona. Pay-as-You-Go Models.” https://www.gsma.com/ 2013. “Sustainable Energy Planning: Leapfrogging mobilefordevelopment/programme/m4dutilities/ the Energy Poverty Gap in Africa.” Renewable and lessons-use-mobile-utility-pay-go-models. Sustainable Energy Reviews 28 (December): 500– Independent Evaluation Group. 2016. “Reliable 509. doi:10.1016/j.rser.2013.08.044. and Affordable Off-Grid Electricity Services for EIA (U.S. Energy Information Administration). 2016. the Poor: Lessons from the World Bank Group International Energy Outlook 2016. https://www.eia. Experience.” https://ieg.worldbankgroup.org/ gov/outlooks/ieo/. Data/reports/lp_off-grid_electricity_1116.pdf. World Bank. 2009. Monitoring Performance of Electric Malik, Kabir, Sudeshna Ghosh Banerjee, and Paul Utilities: Indicators and Benchmarking in Sub- Baringanire. 2014. Scaling Up Access to Electricity: Saharan Africa . http://www.esmap.org/sites/ The Case of Rwanda. Washington, DC: World esmap.org/files/P099234_AFR_Monitoring%20 Bank. http://documents.worldbank.org/curated/ Performance%20of%20Electric%20Utilities_ en/621551468059083947/Scaling-up-access-to- Tallapragada_0.pdf electricity-the-case-of-Rwanda. Vodafone. 2015. “BBOXX Ensures Reliable Energy for McKibben, Bill. 2017. “The Race to Solar-Power Remote Communities Worldwide.” http://www. Africa.” The New Yorker , June 19. http:// vodafone.com/business/why-africa-is-feeling-the- www.newyorker.com/magazine/2017/06/26/ power-of-iot-2016–03–07. the-race-to-solar-power-africa. World Bank. 2015. “Sub-Saharan Africa Economies Mills, Evan. 2016. “Identifying and Reducing the among World’s Top Improvers of Business Health and Safety Impacts of Fuel-Based Lighting.” Climate, Says Doing Business Report.” Press Energy for Sustainable Development. http://evan- Release, October 27. World Bank, Washington, mills.lbl.gov/pubs/pdf/mills-off-grid-lighting-and- DC. http://www.worldbank.org/en/news/ health.pdf. press-release/2015/10/27/sub-saharan-africa- Murphy, James T. 2001. “Making the Energy economies-among-worlds-top-improvers-of-busi- Transition in Rural East Africa: Is Leapfrogging ness-climate-says-doing-business-report. an Alternative?” Technological Forecasting and Social Change 68 (2): 173–93. doi:10.1016/ S0040–1625(99)00091–8. $ FINANCE Finance 5 I. A Sector in Need of Change and help the region move from low-income status toward middle-income and emerging market status It is unanimously recognized that access to finance (Beck et al. 2011). is key for inclusive economic growth. Foremost, a developed financial system reduces the cost Financial markets in Africa are considerably less devel- of financial intermediation, hence enhancing the oped than those elsewhere in the world, according efficiency of transforming savings into investment. to virtually all indicators of financial development. This increase in efficiency lowers interest rate mar- The development and financial inclusion gaps are wide gins, thereby raising the availability of credit to firms in Africa (Allen et al. 2016). In Sub-Saharan Africa, and households. Second, in reducing savings held only 34 percent of those ages 15 years and older have in the form of unproductive liquid assets, financial an account at a formal financial institution (Demirgüc- intermediaries may positively influence savings beha- Kunt et al. 2014). In the nonbank finance area, for vior. Thus, a developed financial system increases instance, based on the standard measures of trading households’ savings rates by providing attractive activity and capitalization, most African stock markets risk-return combinations, which should induce are quite thin, with low levels of liquidity. households to save more and, in turn, stimulate investment and consequently higher economic There is also a lack of access to credit for small and growth. Third, a well-functioning financial system medium-size enterprises (SMEs) across the region. improves financial intermediation, leading to a better Some 40, 18, and 9 percent of small firms in Ghana, allocation of resources across investment projects, Kenya, and South Africa, respectively, cited access as it provides economic agents with a mechanism to finance as a barrier to the growth of SMEs (Hansen that allows for hedging, trading, and pooling risk, et al. 2012). Per the World Bank’s Doing Business thereby raising the level of investment and economic report, the distance to the frontier for “Getting Credit” growth. In Africa, there is very little formal savings shows that in 2017, Sub-Saharan Africa was 63 points mobilized and even less credit allocated to productive from New Zealand (the frontier country), the second firms, and as a result economies are not diversifying lowest performing region after the Middle East and or growing at a pace one sees in East Asia. North Africa.1 Rwanda is a rare example of good per- formance in the region, ranking second for reasons A vibrant financial system promotes economic effi- such as having a private credit bureau, including ciency, thus facilitating the growth process. This is par- credit scoring and flexibility in the types of debts and ticularly relevant for Africa, where financial deepening obligations that can be secured through a collateral and broadening can contribute to poverty reduction agreement. 65 66 Leapfrogging: The key to Africa’s Development? FIGURE 5.1: Sub-Saharan Africa: Financial Development Index, 1980–2013 1. Oil Exporters 2. Other Resource-Intensive 0.4 0.8 0.7 0.3 0.6 0.5 0.2 0.4 0.3 0.1 0.2 0.1 0 0 Angola Nigeria Gabon Cameroon Chad Congo, Rep. Equatorial Guinea South Sudan SSA MENA EMDE Asia LAC South Africa Namibia Botswana Zambia Ghana Liberia Tanzania Mali Niger Guinea Sierra Leone Central America Rep. SSA MENA EMDE Asia LAC 1980a 2013 1980b 2013 3. Non-Resource-Intensive 0.5 0.4 0.3 0.2 0.1 0 Mauritius Seychelles Cabo Verde Kenya Côte d'Ivoire Swaziland São Tomé and Príncipe Mozambique Lesotho Senegal Ethiopia Burundi Togo Burkina Faso Benin Uganda The Gambia Eritrea Rwanda Madagascar Malawi Comoros Guinea-Bissau SSA MENA EMDE Asia LAC 1980c 2013 Sources: Sahay and others 2015; IMF staff calculations. Note: The index is from 0 (least developed) to 1 (most developed). EMDE = emerging market and developing economies; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; SSA = Sub-Saharan Africa. a For Angola, 2000; for Equatorial Guinea, 1990. b For Guinea and Namibia, 1990. c For Eritrea, 2000; for Mozambique and São Tomé and Príncipe, 1990. Currency markets in many Sub-Saharan African coun- to be disadvantaged due to volatile exchange rates and tries remain risky and are devoid of liquid, long-term the risk of currency depreciation, and inadequate mar- investment instruments. Regular institutional invest- ket infrastructure, among others. Thus, international ment in local currency debt in these countries tends investors command greater returns to compensate for Finance 67 taking these risks, which often makes local currency The African banking sector is characterized by high financing prohibitively expensive. Consequently, spreads, short tenure, and general risk aversion, and governments and private sector participants are con- does not offer adequate products, with its lending strained to borrow in foreign currencies from donors activities being concentrated in certain sectors. This or through the capital markets, thereby exposing them culminates in scenarios where banking systems tend to currency risk. This applies to entrepreneurs and to have high levels of liquidity, but provide little lend- households who take out microloans as well and may ing to SMEs (Pougue and Bernasconi 2013). SMEs have to borrow in foreign currency. in Sub-Saharan Africa are also often unable to provide adequate financial statements and quality collateral, Based on a comprehensive measure of financial devel- limiting their access to finance from formal financial opment (Sahay et al. 2015), which considers finan- institutions (Sacerdoti 2005). The absence of credible cial institutions and markets, the financial system credit bureaus in most countries and the concomitant in Sub-Saharan Africa trails other regions, although effect on interest rates further hinders SMEs from gain- there has been some modest acceleration over the ing access to finance (Bass and Schrooten 2005). The past several years (figure 5.1). The index shows lack of access to credit for SMEs in Sub-Saharan Africa that some middle-income countries, like Mauritius, is further reflected in the data on bank and domestic Namibia, Seychelles, and South Africa, have seen credit to the private sector (table 5.1). Based on data rapid financial development since the 1980s, yet less for 2015, Sub-Saharan Africa trails other developing progress has been made within other groups in the regions in both indicators of financial development. region. In countries like the Central African Republic, Cameroon, Chad, and Sierra Leone, the current In a similar vein, equity financing is limited, as por- level of financial development is lower than it was trayed by the relatively low private equity penetration in the 1980s, due partly to civil conflicts or change in Africa. For instance, in 2014, the ratio of pri- in the relative importance of state-owned enterprises. vate equity investments to gross domestic product For some countries, for example, Kenya, the level (GDP) across Sub-Saharan Africa stood at a meager of financial development may be understated, since 0.12 percent, compared with 0.21 percent in South the index does not fully capture the recent impact Africa, 0.81 percent in the United Kingdom, and 1.23 of mobile payment systems. percent in the United States (KPMG and SAVCA 2015). TABLE 5.1: Bank and Domestic Credit to the Private Sector Domestic credit to private sector Domestic credit to private sector by banks (% of GDP) (% of GDP) Region 2000 2005 2010 2015 2000 2005 2010 2015 East Asia & Pacific (excluding high income) 97.0 97.9 111.8 140.5 96.5 97.7 110.4 139.1 Europe & Central Asia — 95.8 106.6 95.4 — 95.5 105.9 94.7 Latin America & Caribbean 25.5 26.0 40.1 49.3 24.8 24.2 36.9 45.7 Middle East & North Africa (excluding high income) 34.9 33.0 39.4 42.1 34.4 32.8 39.1 41.8 South Asia 27.3 38.3 47.0 47.3 27.3 38.3 47.0 47.3 Sub-Saharan Africa 57.0 61.1 54.7 45.7 32.9 33.3 32.0 28.9 Source: World Bank, World Development Indicators. Note: GDP = gross domestic product. 68 Leapfrogging: The key to Africa’s Development? A key characteristic of the financial system in the of the financial system in emerging markets is often region is the crowding-out of private sector financing characterized by disintermediation from the tradi- by the public sector. Financially constrained govern- tional financial intermediaries—mostly commercial ments tend to offer high real interest rates on govern- banks—as well as by extended maturities of funding ment bonds, which become more attractive to banks that can better match the expected lifespan of large when compared with providing credit to SMEs. This projects and investments. crowding-out can be direct when the banking sector purchases a substantial share of bonds, or indirect Financial innovation can provide opportunities for when the government bond rates set the risk-free floor leapfrogging in financing and make capital more for private sector financing, which serves as a disincen- efficient, risk management more targeted, hedging tive to borrowing. Therefore, banking is very expensive better matched, and trading less costly. It should in Africa, reflected by high interest spreads and mar- also contribute to the unbundling of risk, improved gins compared with other regions in the world (Beck et liquidity, broader access to capital, and optimal port- al. 2009). Moreover, extremely low returns on depos- folio diversification. However, financial innovation its have discouraged savings and limited the ability is not without dangers, as it is often driven by risk of the banking sector to perform its intermediary role. and, in return, incentives at the level of the individ- This has been a contributory factor in limiting the ual, structured financier or institution. The financial development of the financial system, which remains incentives of individuals, coupled with advancements narrow and illiquid, with limited access to long-term in technology and financial engineering skills, can financing and, consequently, a hindrance to local debt result in situations where new instruments outpace financing. The financial systems also lack innovative the existing market and regulatory infrastructure. financial instruments, especially those geared toward SMEs, which constitute most businesses in the region Nevertheless, there is an advantage for emerging mar- and tend to be confined to informal sector financing kets more generally, and particularly for countries because of inadequate financial services. in Sub-Saharan Africa in pursuing financial innova- tion, to trigger the transformation for leapfrogging Several factors have served as impediments to the devel- in the financial sector. Conventional financial services opment and efficiency of the financial system in African have room to be more inclusive and innovation can countries. The institutions required for building an effi- offer viable services to those at the bottom of the pyra- cient financial system, including robust contractual and mid. Moreover, development of the formal financial informational frameworks and incentive-compatible services industry will expand access to finance, and regulation and supervision, are weak (Beck, Fuchs, and innovation in the financial sector is critical in this Uy 2009). The inadequacy of the regulatory framework regard. in these countries has produced a concentrated banking sector, very low intermediation rates, and inefficient collateral registry systems that further hinder access II. Leapfrogging Finance to credit for businesses and individuals. There has been a paradigm shift in the financial sector The benefits of relatively broad and deep capital mar- across the globe over the past decade, as the ecosystem kets, complemented by an active derivatives market, was created for disruptive innovation in finance. This can be captured by factors such as lower pricing, section documents country experiences in financial reduced cost of capital, mitigated risk exposures, and innovation, and its impact on financial inclusion and increased liquidity, among others. The development access to financing. Access to finance has been made Finance 69 easy and affordable via the use of mobile phones, the proven successful in Kenya, as the example of Equity best example of financial leapfrogging in Africa. Other Bank demonstrates. Equity specializes in the provi- examples of financial leapfrogging include the rela- sion of high-volume small loans at low interest rates. tively rapid take-up of risk index insurance in some Micro-loans are available from as little as K Sh 500 African countries, including innovative payment and (US$5.81) (The Economist 2012). Other innovations collateral options, and lowering the time to develop included waiving property ownership requirements local currency–denominated bonds. for opening an account, flexible forms of collateral including personal belongings, and trucks with M-Pesa, launched in 2007 by Safaricom in Kenya, a satellite dish and a bank manager to go to places ignited the mobile money revolution in Africa. The where there were no branches. Equity also provides service allows customers to use a mobile phone free financial literacy programs. By 2011, Equity had to undertake deposit, withdrawal, and money transfer provided US$750 million in loans to almost 300,000 activities; pay bills; and purchase airtime. M-Pesa’s SMEs.2 Consequently, Equity’s deposit accounts have initial innovation was to leapfrog the lack of financial increased to more than nine million, making it the services by exploiting existing telecommunications second largest bank in the country (Central Bank infrastructure and network subscriptions in Kenya, of Kenya 2017). circumventing the expenses associated with storefronts and in-cash transactions. The service has expanded In South Africa, the region’s most sophistical banking to include more advanced offerings, including ATM sector has been at the forefront of various financial cash withdrawals, savings accounts, on-site retail pay- developments. The largest banks have an agreement ments, mobile ticketing for events, and corporate bank- under the Financial Sector Charter to provide a special ing accounts. M-Pesa has spawned competing mobile bank account for poor households, called the Msanzi money services. By 2016, 75 percent of the country’s account. This initiative generated more than 3.3 mil- adult population had a mobile money account, with lion account holders in the first 18 months after its transactions amounting to the equivalent of 4.5 per- launch in 2004. Further, since 2007, foreign issuers cent of annualized GDP a day (Ndung’u, Morales, and can list rand-denominated bonds at the South African Ndirangu 2016)). M-Pesa was a disruptive innovation Bond Exchange, further opening toward foreign mar- that transformed banking in other countries, lead- ket participants. South Africa’s securitization market ing to an explosion of mobile money services across has experienced growth and remained relatively Africa, enhancing financial inclusion. M-Pesa also healthy, aided by the heavy concentration of indus- enabled innovations in other sectors, such as energy. try activity around the five major banking groups. One challenge with expanding off-grid solar energy South Africa has followed the global trend and wit- in Kenya was that low-income citizens could not afford nessed unprecedented growth in its derivatives mar- the upfront full cost of the solar panel. M-Kopa Solar, ket, which includes exchange-traded derivatives and a company that supplies solar panels to low-income a well-developed over-the-counter market in deriva- rural households, allowed customers to acquire a solar tives. The South African Reserve Bank is beginning panel kit by making daily micropayments (less than to review regulatory issues related to digital currencies 50 cents) using M-Pesa after an initial down payment such as Bitcoin. of about US$35. After around two years of payments, the customer owns the solar panel kit. Credit denominated in foreign currency carries risks for borrowing countries, especially concerning cur- At the same time, a responsive retail banking model rency depreciation, which tends to increase debt bur- with innovations aimed at the African context has dens, as well as fluctuations in the value of currencies, 70 Leapfrogging: The key to Africa’s Development? which could be unnerving for potential investors. The own labor and using the insurance policy as collateral World Bank and International Finance Corporation for better credit terms. R4 found that insured farmers (IFC) are addressing this by issuing local currency in Ethiopia saved more than twice what those with- bonds, aiming at strengthening domestic capital mar- out any insurance saved, and invested more in inputs kets by working with governments, regulators, capi- and assets. In Senegal, after two years of bad harvests, tal market institutions, investors, and local financial insured farmers were able to maintain food security institutions. The instruments include offshore bond compared with others exposed to the same risks. R4 sales in local currencies aimed at international as well aims to reach 500,000 farmers in the region by 2020. as domestic investors, as well as domestic bond issues. The World Bank has issued about US$8.5 billion The Women Entrepreneurship Development Project worth of bonds in 19 currencies since 2011, including (WEDP) is an investment lending operation of the in several African currencies, such as the Uganda schil- World Bank. WEDP’s objective is to increase earn- ling. Since 2002, IFC has issued bonds in 14 emerg- ings and employment for women-owned enterprises ing market currencies around the world, including in Ethiopia. It created the first women entrepreneur– Rwanda. Given that a local currency bond issue takes focused line of credit in Ethiopia in 2013, disbursing several years to develop, IFC aims to reduce the time about US$2 million in loans monthly. As of the end by standardizing the process. It notes that in Africa: of 2015, more than 3,000 women entrepreneurs had “...there is a great desire to catch up. Some countries taken loans, 64 percent of them being first-time bor- are impatient enough they want to leapfrog—they rowers, and more than 4,500 participated in business don’t want to wait another 20 years to develop the training. WEDP microfinance institutions improved market.” (World Bank 2014) their ability to appraise, which resulted in a decline in collateral requirements from an average of 200 Agricultural risk schemes have emerged to avoid percent of the value of the loan to 125 percent. situations where farmers resort to selling off valuable Moreover, they are adopting and diffusing new tech- assets, like livestock and equipment, due to climatic niques to improve their reach and service to women events beyond their control. To address this chal- entrepreneurs. They are developing new loan prod- lenge, index-based risk financing has been developed ucts and recognizing new forms of collateral, such to hedge against specific climate-related events. Data as vehicles, personal guarantees, and even business on such events are tracked and payouts are triggered inventory. WEDP is introducing innovative credit when deviations from historical averages reach preset technologies to lenders, such as psychometric tests, levels. For instance, a significant drop in rainfall below which can predict the ability of a borrower to repay the norm would be a trigger. The first government- a loan and reduce the need for collateral. This technol- level, index-based insurance was piloted in Ethiopia ogy allows entrepreneurs who do not have collateral in 2006, spearheaded by the United Nations’ World to take an interactive test on a tablet computer, which Food Program (WFP), with 26 weather stations predicts the likelihood of repayment. A high score monitoring rainfall throughout the country daily. The makes it possible to borrow without traditional col- experience resulted in the Rural Resilience Initiative lateral. Other banks are requesting the technology, and (R4), which was launched by WFP and Oxfam in scaling-up could have a significant impact on access 2011.3 R4 currently reaches more than 43,000 farmers to credit in Ethiopia. (about 200,000 people) in Ethiopia, Senegal, Malawi, Zambia, and Kenya. The initiative has introduced sev- The Asian Bond Fund (ABF) is an example of a regional eral innovations for rural insurance, including allow- initiative designed to protect economies from damaging ing poor farmers to pay for crop insurance with their currency speculation while at the same time enhancing Finance 71 bond market development. It is one of the first initia- facilitator of development financing. CDB has devised tives in the world where a regional organization con- major development strategies for the economy through tributed financial resources to setting up a bond fund. medium- and long-term credit, investment, and other The 11 members of the Executives’ Meeting of East financial services. In its development financing role, Asia and Pacific Central Banks (EMEAP) launched the CDB has built a bridge between the government and ABF in June 2003. The 11 central banks pooled US$1 the market, through the use of public credit to attract billion to invest in dollar bonds issued by the EMEAP social funds for urbanization, economic transition, sovereign and quasi-sovereign borrowers in the EMEAP and stable development. Development financing has countries (Ma 2005). This was followed by ABF2, been a key instrument in China’s urbanization strategy. launched in 2005, which invested US$2 billion in local For example, from 2004 to 2014, CDB issued loans currency bonds. The bonds had the desired effect amounting to 54 percent of fixed asset investment of drastically reducing currency speculation; they also in China’s public infrastructure, providing a capital helped develop the bond and local currency bond mar- guarantee for over half of the city construction projects. ket in the region. Equally important was the catalytic role of ABF in collaboration and building trust among Inclusive finance aims to provide services to groups the region’s central banks. with unfavorable economic circumstances and lim- ited financial options. The ultimate objective is to The ABF initiative is designed to facilitate greater finan- facilitate economic growth of enterprises and families, cial integration in Asia, with the objective of promoting eliminate poverty and inequality, and incorporate all the diversity and efficiency of financial intermediation persons needing financial services into the financial across countries. In 2008, a new Asian Bond Market system. Alipay, a third-party mobile and online pay- Initiative roadmap was endorsed following the rec- ment platform, is an example. Alipay was established ognition that the existing activities had some short- in February 2004. In 2010, China’s central bank comings. The new roadmap focuses on promoting issued licensing regulations for third-party payment the issuance of local currency–denominated bonds, providers and a separate set of guidelines for foreign- facilitating the demand for local currency–denomi- funded payment institutions. Alipay, which accounts nated bonds, improving regulatory frameworks, and for half of China’s nonbank online payment market, developing the relevant infrastructure for bond mar- was restructured as a domestic company to facilitate kets. The Asian Development Bank has actively sup- the regulatory approval for the license. In the fourth ported the development of local bond markets in Asia, quarter of 2016, Alipay had over half the market through the provision of technical and research assis- share of China’s US$5.5 trillion mobile payment tance to the Asian Bond Market Initiative, issuance market, by far the largest in the world. Alipay pro- of local currency–denominated bonds, issuance of the vides an escrow service, where consumers can verify Asian Currency Note Program of US$10 billion, and their satisfaction with purchased merchandise before support for online information dissemination. releasing money to the seller. Worldwide, more than 300 merchants use Alipay to sell directly to consum- During the years following the 2008 global finan- ers in China. cial crisis, two financial innovations were developed in China. These solutions comprise a development Alipay has progressed with several recent innovations financing model supporting China’s urbanization, and in digital finance. Quick Payment, launched in 2011, digital inclusive finance aimed at providing financial aimed to solve the problem of the low success rate services to groups with limited financial options. The and poor experience caused by complicated payment China Development Bank (CDB) has served as the steps on online shopping platforms. Quick Payment 72 Leapfrogging: The key to Africa’s Development? introduced a one-click solution, streamlining the that oversee repayment records. One of the major process. Market response was favorable, and Quick impediments to borrowing in Africa is the lack of col- Payment soon became a standard product for all pay- lateral, not because of insufficient assets, but due ment institutions, including Tenpay and Chinabank to inefficient registration systems. Reliable credit regis- payments, significantly improving the degree of inclu- tries, effective cadaster systems, and effective land title sive digital finance in payments. Alipay also experi- transfers are critical for the performance of financial mented with various technologies for offline small intermediaries, particularly for assisting SMEs. and micro businesses without Point-of-Sale machines. It implemented a Quick Response solution, where The banking system needs to be reorganized by open- merchants can scan a customer’s payment details ing the sector to competition, reviewing prudential using a smartphone, providing a convenient payment ratios, and putting in place innovative savings and bor- solution for many small and micro businesses in rural rowing instruments adapted to local needs. A typical areas. Alipay is also providing payment platforms for characteristic of the banking sector in African coun- other types of services, including in the medical field, tries is the high concentration ratio; at an aggregate where hundreds of institutions have access to Alipay. level, Beck and Cull (2013) estimate that the average For example, Alipay is connected to insurance pro- market share of the five largest banks in the median viders in the city of Shenzhen, where it established African country was 81 percent in 2011. This oligop- the first medical insurance mobile payment platform olistic structure has negative consequences, among in the world. which are high interest rate spreads, which crowd out credit to the private sector by making loans too costly. Mobilization of domestic resources is vital for Changes to Transform the Financial III.  investment and sustainable growth. Banks, as the System in Africa primary channels of financial intermediation, have a key role to play in this regard. Thus, the banking African countries will need to undertake several sector needs to be reformed to increase competition reforms to exploit the potential for leapfrogging. and effective accommodation of the demand for credit Empirical studies on the development of mobile from the public and private sectors, so that savings banking in East Africa show that an enabling regula- and resources can be channeled toward productive tory environment is essential for supporting growth investment. in mobile money services and financial inclusion (Mlachila et al. 2016). Moreover, the leapfrogging The gap between the informal and formal financial experiences provide examples of policy measures that sectors needs to be bridged by formalizing microfi- underpin innovation in and development of the finan- nance institutions to help them scale up activities while cial system. The experiences of leapfrogging in finance developing financial products geared toward SMEs. also serve as the basis for options available to African The emergence of microfinance as a tool for financ- countries to circumvent the challenges presented ing the informal economy coincides with the growing by underdeveloped financial markets through various understanding between nongovernmental organiza- instruments (box 5.1). tions, development experts, and policy makers that a significant proportion of the population in devel- Regulatory bottlenecks can be tackled by establish- oping countries has no access to financial services. ing and enforcing laws and creating facilities that Microfinance, which at first seemed to be a panacea, enable smoother credit flows. Investor confidence can has demonstrated its limitations in scaling up opera- be enhanced through the creation of credit bureaus tions. Thus, formal financial institutions need to adapt Finance 73 Financial Options for Leapfrogging Box 5.1:  Several areas of finance present opportunities for Financial inclusion can be enhanced via measures such African countries to leapfrog: as making government payments like conditional cash transfers through electronic channels; establishing In agriculture financing, the opportunity relates to how or accelerating universal coverage of national ID sys- effectivity such financing can be aligned to the agricul- tems, which facilitate not only opening bank accounts, tural production cycle. There are two options for this but also making transactions using the accounts; and purpose. The first, commodity collateralized finance, strengthening education programs to deliver financial uses commodities or, more broadly, inventories as col- and digital skills and literacy. One example is the World lateral for lending.  Commodities in  this sense may Bank’s support for the Government of  Kenya in  the already exist as stocks or inventories, but also could design of a platform to distribute government debt be  pledges of  future production. The use of  digital to retail investors through mobile phones. The instru- technologies enhances the tracking of commodities, ment has been designed with minimum investment and the emergence of  collateral management com- amounts that are accessible to lower-income groups. panies provides an  additional level of  comfort for financiers. This requires an enabling environment that Local currency financing in  Africa has been con- promotes the use of commodities as collateral. The sec- strained by the lack of incentives, policy coordination, ond option links value chains to financial institutions. As and affordable solutions to  enhance clearing and agriculture value chains in Africa become better orga- settlement connectivity and build effective secondary nized, opportunities increase to introduce digital pay- market architecture. A tailored solution can be devel- ments and collect information by  anchor firms that oped by combining technology and knowledge based could be used by financial providers of finance to facili- on lessons learned in other countries in (a) clearing tate efficient allocation of  credit.  This would require and settlement technology used to integrate markets; tripartite arrangements between farmers, anchor firms (b) implementation of  trading platforms; (c) design (for example, agribusinesses), and financial institutions. of  market-making systems and alternative trading arrangements, such as call markets; (d) design of local Agricultural index insurance provides protection currency indexes; and (e) participation of multilateral against climate shocks like drought, flooding, and development banks as conveners in the development irregular rainfall. Because of the need for on-site farm of investment products. visits, the traditional agriculture insurance market largely fails to  meet smallholder farmers’ demand Infrastructure finance can be “leapfrogged” by devel- for affordable insurance. Satellite-based index insur- oping unconventional financing solutions that do not ance, when combined with mobile technology for need to  wait for full-fledged capital markets. For registration and claims settlement purposes, has example, the World Bank is supporting an approach huge potential to meet the needs of these farmers. in  Kenya to  mobilize long-term local institutional However, insurance companies need strong capacity investors into infrastructure financing through alter- building and training to  develop sustainable index native financing vehicles, such as  debt funds and insurance products that are profitable and helpful hybrid financing featuring long-term institutional for smallholder farmers. One example of support for investors and local bank co-financing. Another feature capacity building is the Global Index Insurance Facility, is a World Bank guarantee, which enhances projects which has delivered managerial and technical training to  acceptable risk-return profiles. This financing for the insurance industry in Ghana and South Africa. solution provides the flexibility needed in  markets (continued on next page) 74 Leapfrogging: The key to Africa’s Development? Financial Options for Leapfrogging (continued) Box 5.1:  that are not yet fully functional, as is the case across infrastructure projects through a suitable investment Sub-Saharan Africa, and leverages the benefits vehicle to pool their funds. Credit risk guarantees are of  a  private-equity fund structure, but modified also useful for long-term financing, specifically when to accommodate features like those of fixed-income issuing local currency debt. Most importantly, through debt. Through an intensive training process, when the domestic debt issuance, countries can use and recycle pipeline projects reach their financing phase, investors their savings toward their investment needs rather would be prepared and comfortable to invest in these than increase their external debt. their products to local demand. Specifically, innova- Africa is characterized by the short-term nature tive financial tools that use technology such as mobile of finance across the region, as illustrated not only banking can also help in leapfrogging traditional finan- in the balance sheet structures of banks, but also in the cial services and reaching a larger population. limited development of contractual savings institutions and financial markets. Although financial inclusion has dominated the recent policy debate and research IV. Future Research agenda, the need for long-term finance for households, enterprises, and the government is enormous. Analysis A potential method for promoting financial inclusion is needed on the short-term nature of finance and in sparsely populated areas is agent banking. A review potential remedies. of the Latin American experience suggests that agents have been effective in reaching the unbanked (AFI Research on financial inclusion has identified policy 2012). However, there have been no rigorous stud- levers to improve access to and use of financial ser- ies of the effects of agent banking, and certainly none vices by households and microenterprises. Moving for Africa. forward, this line of research should go beyond micro- enterprises, in supply- and demand-side constraints. Digital currencies such as Bitcoin could have a revolu- Although there is a large literature analyzing the tionary impact in Africa as a solution to the unbanked financing constraints of firms of different sizes, there population, high remittance fees, restrictions in cross- is less evidence on specific policies and interventions border payments, hyperinflation resulting in limited that have differential effects on firms of different sizes savings and investment opportunities, and problems (Beck and Cull 2013). with online payments. The International Monetary Fund is analyzing how distributed ledger technology Reform processes have been dominated by the global (that is, digital currencies) could facilitate cross-bor- financial crisis and the fragility concerns of economies der payments (He et al. 2017). Bitcoin is being used with developed, if not sophisticated, financial markets. in Zimbabwe to leapfrog traditional banking (Antoni Africa’s fragility concerns are different and its reform et al. 2015). Clearly, more research is needed in this capacity is lower. Some of the suggested or imple- area to explore the potential of digital currencies mented reforms, such as centralizing over-the-counter in Sub-Saharan Africa to stimulate financial sector trades, seem irrelevant for almost all African countries leapfrogging. or might have substantially worse effects in the context Finance 75 of shallow financial markets than in sophisticated to gain a better understanding of the channels through markets increasingly dominated by high-frequency which cross-border banking can help deepen financial trading. An approach of best fit would be more appro- systems and foster better integration, and the chan- priate than a best practice approach that blindly adopts nels through which cross-border banks can threaten international standards. The extent to which the pri- financial stability. oritization of regulatory reforms according to risks and opportunity costs is relevant for financial deepening The establishment of credit registries and the concomi- and inclusion is worth analyzing. tant collection of an increasing amount of information on borrowers can generate data that could be a critical Another issue worth examining is globalization and input into research, as is the case in other developing cross-border bank regulation, given that the degree countries. These micro-level databases thus provide of financial integration of Africa compared with other an important impetus for further research. They can emerging and developed countries has been increas- enable assessments of various lending techniques, ing, as a region as well as intra-regionally. Identifying delivery channels, and organizational structures the cross-border links between countries is critical. conducive to small-business lending. They can also The collection of data represents an important first be used to gauge the impact of specific interventions step (Claessens and van Horen 2014). It is also critical or policy reforms. 76 Leapfrogging: The key to Africa’s Development? Endnotes https://ideas.repec.org/p/diw/diwwpp/dp469. html. 1 http://www.doingbusiness.org/data/exploretopics/ Beck, Thorsten, and Robert Cull. 2013. “Banking getting-credit. in Africa.” Policy Research Working Paper 6684, 2 See “Equity Bank: Impact Case Study” at: http:// World Bank, Washington, DC. https://papers.ssrn. www.igdleaders.org/reports/equity-bank- com/abstract=2348417. impact-case-study/. Beck, Thorsten, Michael J. Fuchs, and Marilou Uy. 3 See “ R4 Rural Resilience Initiative” at: https:// 2009. “Finance in Africa: Achievements and docs.wfp.org/api/documents/b9a3d33bd9974e5 Challenges.” Policy Research Working Paper aaf01b11a3e3da410/download/?_ga=2.156 5020, World Bank, Washington, DC. https:// 293689.305589595.1504192173-1880160 papers.ssrn.com/abstract=1462019. 767.1504192173. Beck, Thorsten, Ross Levine, and Asli Demirguc-Kunt. 2009. “Financial Institutions and Markets across Countries and over Time: Data and Analysis.” References Policy Research Working Paper 4943, World Bank, Washington, DC. Allen, Franklin, Isaac Otchere, and Lemma W. Senbet. Beck, Thorsten, Samuel Maimbo, Issa Faye, 2011. “African Financial Systems: A Review.” and Thouraya Triki. 2011. Financing Africa: Review of Development Finance 1 (2): 79–113. Through the Crisis and Beyond . Washington, doi:10.1016/j.rdf.2011.03.003. 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Good governance is There is a consensus that good governance relates to critical for government and market efficiency, and the political institutional procedures and the results this strongly influences economic development. required to realize development goals, such as decent The implementation and enforcement of laws, qual- access to health, housing, food, education, justice, and ity of institutions, and degree of transparency affect security. The United Nations Development Programme market-driven economic development. The Office of believes that governance and human development are the United Nations High Commissioner for Human indivisible, and that good governance is a primary Rights (OHCHR) considers that there is no universal means of reducing poverty (UNDP 1997). The poten- agreement about what constitutes good governance. tial of good governance to improve economic and OHCHR finds that, depending on the context, good social development outcomes is of utmost relevance governance includes “full respect of human rights, the to Sub-Saharan Africa, which has the lowest per capita rule of law, effective participation, multi-actor partner- income and human development of any region in the ships, political pluralism, transparent and accountable world (figure 6.1). FIGURE 6.1: Gross National Income per Capita and the Human Development Index, 2015 a. Gross national income per capita b. Human Development Index Arab States 14,958 Europe and Central Asia 0.756 World 14,447 Latin America and the Caribbean 0.751 Latin America and 14,028 East Asia and the Pacific 0.720 the Caribbean Europe and Central Asia 12,862 World 0.717 East Asia and the Pacific 12,125 Arab States 0.687 South Asia 5,799 South Asia 0.621 Sub-Saharan Africa 3,383 Sub-Saharan Africa 0.523 Source: Adapted from United Nations Development Programme data. Note: In panel a, gross national income is based on 2011 purchasing power parity. 81 82 Leapfrogging: The key to Africa’s Development? The Ibrahim Index of African Governance (IIAG) is affecting democratization and democratic governance, a tool for measuring and monitoring governance in macroeconomic and public sector management, and Africa. The IIAG defines governance as “... the provi- agriculture and environmental management. Potential sion of the political, social and economic public goods impacts include “enlarging the democratic space, and services that every citizen has the right to expect enhancing dialogue, facilitating inclusiveness, and by from their state, and that a state has the responsibility providing governments the tools to better perform their to deliver to its citizens” (MIF 2016). The IIAG mea- administrative and management functions” (Adesida sures outputs and outcomes of government rule from 2001, 18). The digital divide between Africa and the rest four angles: safety and the rule of law, participation of the world is noted as a major barrier to the applica- and human rights, sustainable economic opportunity, tion of digital technologies for governance. and human development. The latest results of the IIAG suggest that small populations positively affect gover- Heeks (2002) points out that African governments nance, with the top five ranked countries in total having have been using information technology for over just five million inhabitants (figure 6.2, panel a) (Dahir four decades, and that progress in the use of ICT for 2016). At the other end, the worst-performing coun- governance is evolutionary rather than revolutionary. tries are all in a fragile situation (figure 6.2, panel b).2 Nevertheless, the emergence of computer network- ing in the 1990s is a key innovation transforming the Since 2000, the foremost change affecting governance processing and communication of government data. has been advances in the use of information and com- Three impacts from the use of e-government include munications technology (ICT). The Internet, mobile improving the internal workings of the public sector communications, and social networking have facili- and reducing costs; improving communications with tated the transformation of public administration in the public as voters/stakeholders or users of public some countries, and triggered a shift in the relationship services; and improving relationships between public between citizens and governments in others (UNDESA, agencies and other institutions, such as other public UNDP, and UNESCO 2012). The potential of digital agencies, the private sector, and civil society institu- technologies for improving governance has been recog- tions. Stakeholders need to understand the large gaps nized for some time. In 2001, the African Development between project design and the reality of the African Bank described reasons for applying digital technologies public sector. These “design-reality gaps” underlie to government processes: “... to improve the quality failure. They arise due to the origin of e-government of service, increase the effectiveness of governments, concepts and designs in developed countries, which and reduce costs” (Adesida 2001, 9). ICT is viewed as have considerably different contexts compared with FIGURE 6.2: Ibrahim Index of African Governance, Top and Bottom Five Countries, 2015 a. Top 5 b. Bottom 5 Mauritius 79.9 Eritrea 30.4 Botswana 73.7 Libya 29.0 Cabo Verde 73 Central African Republic 25.7 Seychelles 72.6 South Sudan 18.6 Namibia 69.8 Somalia 10.6 Source: Adapted from MIF 2016. Governance 83 those in African countries. Some best practices may local governments in Africa to engage citizens in help to improve project success, but only if they are greater participation in areas such as service delivery, appropriate for African contexts. taxes, financial management, land management, edu- cation, local economic development, citizen registra- The rise of digital technologies, especially social net- tion, and political inclusion (Waema and Adera 2011). work applications, provides tools for citizens to push for improved accountability and greater transparency. Corruption is a major, and some argue the greatest, Turianskyi and Gruzd (2016) find that increasing rates obstacle to social and economic development.3 Digital of cell phone use and Internet penetration in Africa technologies can lead to more transparency, reducing facilitate access to information and reporting of issues. corruption among public officials. One study finds a An example was the role of social media in North Africa connection between corruption and e-government, for coordinating demonstrations during the “Arab with a statistically significant link between the Spring.” Mobile features, such as cameras and GPS, United Nations E-Government Development Index can be powerful tools for citizen involvement. Cell (EGDI) and Transparency International’s Corruption phone cameras were used to record election results Perception Index, suggesting that as the use of e-gov- posted outside counting stations in Zimbabwe. Kenya’s ernment increases, corruption decreases (Mistry and Ushahidi, an open-source software system using Jalal 2012). The impact of e-government on reducing Google Maps, used geo-tagging to report incidents corruption is higher in developing countries than in of voting irregularities during the 2008–09 election. developed ones. This finding is especially significant Digital technologies have a global aspect in lobbying for for Sub-Saharan Africa, which ranks lowest in the better governance by aiding advocacy groups to orga- perception of corruption (figure 6.3). nize across national boundaries (World Bank 2017). Digital technologies can improve registration processes The digital divide across and within countries can for citizens in areas such as births and passports. An result in those better provisioned with ICT having important area is the national identification (ID) card. greater influence on and use of e-government (World The lack of official identification prevents citizens Bank 2017). Designing public services for a wide audi- in many developing countries from exercising their ence and variety of ICT can mitigate this. In Kenya, rights and isolates them socially and economically. the government partnered with mobile operators to For example, they may not have access to voting, support an application that works on older model legal action, receipt of government benefits, banking, cell phones to communicate with citizens living in remote areas without access to the latest technologies (Turianskyi and Gruzd 2016). Corruption Perceptions Index, FIGURE 6.3:  2016 Depending on the legal and constitutional framework, EU & Western Europe 66 governance may be decentralized. Some African coun- Asia-Pacific 44 tries are decentralizing, with greater power for prov- Americas 44 inces and municipalities. This moves governance from Global 43 purely a federal matter to greater local involvement, Middle East & North Africa 38 with implications for the levels and types of digital Eastern Europe & Central Asia 34 Sub-Saharan Africa 31 technology applications. There are implications for leadership roles in the use of digital technologies for 0 10 20 30 40 50 60 70 government. E-governance has the potential to enable Source: Transparency International. 84 Leapfrogging: The key to Africa’s Development? and borrowing (Dahan 2015). Digital IDs, combined creation of a dedicated agency for electronic govern- with the broad spread of mobile devices in developing ment, and Rwanda’s success in connecting government nations, offer a transformative solution to the problem. agencies and deploying online public e-services. Kenya Digital IDs are a simple means for capturing official and Burkina Faso are notable for innovative deployment identification that can reach far more people; digital and use of open data; Côte d’Ivoire has had the greatest IDs also create innovative and efficient ways for gov- improvement in governance indexes. ernments and businesses to serve citizens. According to the EGDI,5 Mauritius ranks at the top in Despite the promise of ICT for governance, it is not a Africa by some margin. Its Online Service Component panacea. Moving government online can exacerbate score is 23 percent above the second highest–rank- inequalities in government services between those with ing country in the region, Tanzania. The reasons for and without access to ICT. Further, the mere adoption the high rank of Mauritius include the country’s long of digital technologies will be insufficient to improve experience with computerization of government, dat- governance, unless it is accompanied by “analog” ing back to the 1990s. Further, Mauritius has the best complements (World Bank 2016). Governments play developed ICT infrastructure in Africa, ranking first in an important role by enhancing the regulations for the continent in the International Telecommunication competition in different markets, retraining workers Union’s ICT development index.6 There are more than for the requirements of the new economy, and ensur- 60 major multi-user systems implemented and opera- ing that institutions are accountable. tional in the public administration, and Mauritius has assisted several other African countries with implementing systems.7 Although back-end processes Experiences Implementing Innovation II.  have long been computerized, a recent impetus has and Technology to Make Government been more focus on services for citizens. Some 800 More Effective households across the country were surveyed to solicit their views as background for the development of African countries are implementing innovation and the citizen-centric e-Government Strategy 2013–2017 technology to make government more effective in sev- (Republic of Mauritius 2013). The strategy has already eral ways. These include standardizing government data had an impact. By July 2017, almost 70 e-services architectures and databases to make back-office work were available online, with 10 mobile applications flows more productive, connecting government offices also under development (Republic of Mauritius 2017). to enhance information sharing and reduce costs, and providing information online or through mobile phones Tanzania’s Electronic Government Agency is an inno- with various stages of interactivity. Ninety-two percent vative example of a dedicated entity charged with of the countries in Sub-Saharan Africa have established handling government computerization for the coun- at least a central portal providing some information try. Established in 2012, the Electronic Government about the government and, in some cases, links to Agency assists government departments with several procedures and forms as well as some interactive ser- activities, including designing websites so they have vices.4 Examples of notable practices in innovation and a consistent look and feel, managing the govern- leapfrogging in the application of digital technologies to ment’s domain name (.gov.tz), and helping agencies government include top-ranked Mauritius, which has develop mobile applications.8 This is the first phase one of the oldest histories of applying computerization of Tanzania’s e-government path, involving connec- to the public sector, as well as the continent’s best digi- tivity of government institutions, re-engineering and tal infrastructure. Other examples include Tanzania’s computerizing back-office processes, and sensitizing Governance 85 and training government officials. The next phase that are anecdotal stories of how the system has reduced is elaborated in the country’s e-government strategy waiting times and the number of offices that need to be has the vision of “becoming an effective Government visited for government services (RwandaOnline 2014). in delivering innovative public services enabled by ICT” (United Republic of Tanzania 2013). The strategy Open data provide unstructured government data calls for delivering efficient and responsive services available online to the public, to enhance accountabil- to citizens, beginning with launching several flagship ity and transparency. The 2010 Kenyan Constitutional applications. revision included a new section calling for citizens’ right to government information. This was one of the Rwanda has made notable use of its own resources, factors leading to the establishment in 2011 of the assistance from the development community, and Kenya Open Data Initiative, the first in Sub-Saharan public-private partnerships (PPPs) to link government Africa. 11 Former Kenyan President Mwai Kibaki offices, computerize back-office processes, and deploy launched the portal, reflecting high-level commitment. electronic public services for citizens and businesses. The Kenya Open Data Initiative helped citizens acquire The World Bank eRwanda project (2006–10) provided information about job vacancies, tenders, and govern- a US$10 million grant aimed at the deployment of ment procedures. As of June 2016, 850 data sets had local area networks in government offices, develop- been uploaded. The portal received approximately 1.1 ment of government applications and services, and million unique visits in 2013, while more than 5,500 training for staff (World Bank 2011). The govern- data sets were downloaded and embedded into various ment used proceeds from the sale of its incumbent websites and blogs (Centre for Public Impact 2016). telecommunications operator to construct a national The initial implementation received some criticism fiber optic network that enabled connections of gov- that it did not contain enough relevant government ernment offices. The backbone is operated as a PPP information and was too unstructured and thus dif- and is available for telecommunications operators to ficult for citizens to interpret (Brown 2013). These use at cost-based prices. Today, most ministries are issues were remedied through several improvements, connected to the Internet via fiber optic broadband. including the Data Bootcamp program. The program provides training to journalists and civil society orga- In 2013, the government entered a 25-year PPP with nizations interested in using open government data; Rwanda Online Platform Limited (ROPL) for the provi- Code for Kenya assigns them computer experts and sion of online government services. Although moving data analysts. Several tools have been developed, such services online has reduced costs for the government, as Open Budget, replacing unstructured budget data user fees have remained the same so that ROPL can with an intuitive, interactive tool. Data Lens is a new, earn income. Services are provided over the Irembo visual way to explore and experience data that makes (Kinyarwanda for gate) platform, which is accessible it easy for citizens and others to get answers to their via web and mobile.9 More than 30 services are avail- questions in a visual, intuitive way, without getting able, ranging from birth certificates to driving tests, lost in data (Kaplan 2015). with plans to expand to more than 100 services. Some 90,000 transactions are processed per month.10 ROPL Burkina Faso provides an encouraging and innova- has partnered with banks and mobile money provid- tive illustration of the use of open data to dissemi- ers to enable payments to be made online. More than nate the results of the 2015 presidential election, 200 service centers are spread throughout the nation moving from unstructured, static data to real-time, for citizens to learn how to use the system or have an formatted data (Scott 2016). A consensus emerged intermediary carry out the transaction for them. There that rapid dissemination of the election results would 86 Leapfrogging: The key to Africa’s Development? increase transparency and encourage confidence in Prerequisites for Contextual III.  the results. There was close collaboration between Leapfrogging the Commission Électorale Nationale Indépendante (CENI), Burkina Faso’s electoral commission, and Most African governments have made at least some government, civil society, and international partners. progress in applying digital technologies within the CENI worked to secure political support for rapid public administration. This ranges from simply put- processing and publication of the election results that ting up a few websites, to interactive processes for the would be unprecedented in Burkina Faso, and almost delivery of services. Most use ICT at least for some unheard of in Sub-Saharan Africa: just one day. The back-end processes; a few have extensive fiber optic Burkina Open Data Initiative was launched by Burkina backbones connecting government offices nationwide. Faso’s national agency for ICT—Agence Nationale de Promotion des TIC—in June 2014, along with an Leapfrogging in the sense of catching up with devel- open data platform featuring around 50 open data oped countries in the short run is unlikely, given the sets. Burkina Faso was the first Francophone country resources and state of connectivity required. A con- in Africa to take such a step. The Burkina Open Data textual type of leapfrogging is necessary, where the Initiative’s Open Elections project sought to provide appropriate application of digital technology is made CENI with a tool to help relay election results to the available within the African environment. E-governance public in a transparent and credible manner. This interventions also need to be cognizant of the region’s tool—a web application that publishes results in real- absorption capability, with grandiose projects having a time—enabled citizens to access results instantly as poor record compared with an evolutionary approach. they were validated by CENI on election day. Leapfrogging requires certain prerequisites to enable success. Heeks (2002) identifies six types of soft and Côte d’Ivoire is a case where governance is leapfrog- hard infrastructure requirements for successful applica- ging, supported by statistical measurement. Over the tion of digital technology to governance in Africa: data past decade, it was the most improved African country architecture, laws, institutions, human capacity, tech- in the IIAG, with its score rising 13 points between nology, and leadership. At the time, most of these were 2006 and 2015, and its ranking rising from 42nd to viewed pessimistically as significant barriers to digital 21st. Part of the change was due to the end of the civil technology applications for governance in the region. wars, with the second concluding in 2011. This led to Since then, there have been significant improvements a rise in safety and the rule of law, with the ensuing in most of these areas and other factors have emerged. political stability driving a rise in foreign direct invest- Essential prerequisites for leapfrogging are updated and ment. Good governance and anti-corruption efforts are described in the following paragraphs. cited as reasons behind improved business procedures (IMF 2017). As a result, business registrations rose 28 The main factor for leapfrogging in the application percent between 2015 and 2016. The High Authority of digital technologies to governance is high-level for Good Governance was established in 2013 as part government support. Political will and leadership are of the government’s national anti-corruption plan. It is prerequisites for successful e-government (PCIP an independent administrative authority responsible 2002). Without strong government commitment, for devising the national anti-corruption strategy and there will be inevitable bureaucratic resistance and preventing and combating corruption and related lack of coordination among ministries. One of the offenses. The High Authority for Good Governance prime examples of a high-level champion is Rwanda, is part of the Network for Integrity, whose members where President Paul Kagame has been a keen advo- include similar institutions from 13 other countries.12 cate of ICT, serving as co-chair of the Broadband Governance 87 Commission for Sustainable Development and winner antipathy toward e-government after the failure of ear- of the International Telecommunication Union’s 2014 lier large projects (Deloitte 2012). There is often a thin World Telecommunication and Information Society line between bottom-up activities that can be scaled Award (ITU 2014). up as opposed to one-off interventions that fade when funding runs out. Therefore, a good understanding is A common attribute of successful instances of e-gov- needed of how quick wins fit into a long-term strategy ernment in Africa is a strategy. This was found to be for sustainable e-governance. the case for example in Mauritius and Tanzania. A strategy provides a concrete reference to goals and Governments also need to have a citizen-centric often a schedule for implementation. Strategies also approach, especially when devising e-services. This ensure that there is a whole of government approach to is particularly relevant in Africa, where most citizens the use of digital technologies, rather than individual do not have access to the Internet. As one study on silos in ministries. This can be further strengthened e-government in East Africa notes: “The lack of citizen through the establishment of an agency responsible for involvement in designing and developing ICT tools e-government to coordinate with information officers and initiatives for governance hinders a comprehen- in all ministries. sive capturing of the pressing needs of citizens...From these findings, we recommend that citizen consulta- In the absence of a strategy, and often where there is tions should be conducted to serve as needs assess- bureaucratic resistance to e-government, a quick win ments when designing ICT for governance initiatives; approach can be considered. Quick wins are often inno- low cost and non-Internet based ICT tools should vative and characteristic of leapfrogging in an area. They be favoured because of technical accessibility and are especially relevant where there is not much digital affordability; extensive awareness and information expertise in government, or it varies across ministries. campaigns should be conducted to let citizens know Quick wins help countries to gain experience that can about the existence of and how to use the tools.” (iHub then be used to develop larger projects. They provide Research 2014) It is understood that e-services should proof of concept that could then attract deeper politi- be in the local language and, in addition to being cal buy-in and are often perceived as nonthreatening. online, also targeted to mobile phones. The use of public centers to teach citizens how to use e-services Bangladesh is a prime example of the use of quick wins or provide intermediary services is another approach. for governance: “Quick-Wins, led by e-Governance/ ICT Focal Points, provided a safe space and stealth- Limited resources often deter governments from adopt- stroming [sic] opportunities within the bureaucracy to ing digital technologies, due to the high cost involved experiment with new and innovative ideas, which was in connecting agencies and developing e-services. This hitherto unheard of and in many cases, discouraged... can be ameliorated through a progressive implementa- In a matter of eight years (2006–2014), hundreds of tion over time, as well as the assistance of development e-services have mushroomed throughout Bangladesh. agencies and the use of PPPs. This has been made possible through a[n] SPS exer- cise, built on the parameters of time, costs and visit Sensitization and training are also needed for success- (TCV), which were carried out under the Quick-Wins ful implementation of e-government initiatives. There auspices.” (Chowdhury and Zaman 2014) is often limited expertise and a lack of incentives among government officials to use ICTs. Therefore, Quick wins have been used in Malawi for the creation e-government projects should have a substantial train- of integrated budget management systems to overcome ing component to enhance the potential for success. 88 Leapfrogging: The key to Africa’s Development? Several infrastructure areas need to be addressed. in the African context. As the examples in this chap- Although Africa lags in wired broadband deploy- ter illustrate, although the widespread availability of ment, there is widespread mobile phone availability. these technologies is absent in Africa, e-government Therefore, e-services need to be deployed that target is nonetheless progressing, and much of it in innova- cell phones. Government services may require pay- tive ways that are applicable to the African environ- ment to make them truly interactive. Collaboration ment. More research is needed on the application of with mobile money providers is essential. This also technologies for enhancing governance in Africa. In requires the adoption of laws that recognize the legal- the same vein, the measurement of online services ity of electronic transactions. Some wired broadband might be made more transparent and objective. The networks and supporting infrastructure, such as data Economic Commission for Africa (2012) has proposed centers, are critical for connecting government offices a set of objective indicators within the international and delivering cloud services. These can be encouraged framework of the Partnership for Measuring ICT for through PPPs and infrastructure sharing. Government Development, yet little progress has been made. data need to be standardized through common archi- tectures to reduce duplication and facilitate sharing. Little research has focused on measurable outcomes from e-government, so there is scarce evidence of the impacts. Most studies refer to anecdotal stories of IV. Future Research people saving time and money by not having to wait in long queues and not having to travel to govern- Much of the literature on the application of digital ment offices. Or studies discuss quantities, such as technologies in Africa is not only outdated, but also the number of open data sets, rather than the effects quite pessimistic. It was drafted in the early 2000s of open data on governance. A variety of areas could when the level of ICTs was much lower and there be better measured to make a case for e-government. were few visible success stories. As described in this For example, the connection of government buildings chapter, an irreversible path toward e-government has through a fiber optic network in Senegal saved CFAF been taken in many African countries, although the 10 billion (US$17 million) between 2014 and 2016, depth and impact vary. Several success stories pose due to the state having its own internal communica- a contrast to the earlier literature. There is a need for tions network (ADIE 2017). more timely research on e-government developments in the region, especially in the context of widespread Better measurement of savings in cost and money mobile phone adoption. might generate more momentum for deploying e-services. It would also be useful to have informa- E-government indexes paint a depressing picture, tion on the proportion of the population using pub- with many African countries ranking near the bottom. lic e-services (ictDATA 2012). Similarly, increases in One reason is the inclusion of related but nonetheless transparency and reductions in corruption that can be extraneous factors, such as the availability of specific linked to governance initiatives in the region need to types of ICT infrastructure and educational levels be better understood. These efforts can help to build of the population. For example, the United Nations up the evidence base of the necessary conditions for e-government index includes fixed telephone and fixed applying digital technology and innovation to leapfrog broadband subscriptions, which are largely irrelevant governance in Africa. Governance 89 Endnotes 9 https://irembo.gov.rw. 10 See “IREMBO,” at: http://rwandaonline.rw/in-the- 1 See OHCHR, “Good Governance and Human works.php#sthash.1L9AqIoY.dpuf. Rights,” at: http://www.ohchr.org/EN/Issues/ 11 http://www.opendata.go.ke. Development/GoodGovernance/Pages/ 12 See “Network for Integrity,” at: http://www.net- GoodGovernanceIndex.aspx. workforintegrity.org/the-network/. 2 See “Harmonized List of Fragile Situations,” at: http://www.worldbank.org/en/topic/fragility conflictviolence/brief/harmonized- References list-of-fragile-situations. 3 International Chamber of Commerce et al. (2008). Adesida, Olugbenga. 2001. “Governance in Africa: 4 https://publicadministration.un.org/egovkb/en-us/ The Role for Information and Communication Resources/Country-URLs. Technologies.” African Development Bank Economic 5 EGDI assesses national websites and how e-gov- Research Papers. https://www.afdb.org/fileadmin/ ernment policies and strategies are applied in uploads/afdb/Documents/Publications/00157664- general and in specific sectors for the delivery of FR-ERP-65.PDF. essential services. The results are tabulated and combined with a set of indicators embodying a ADIE (Agence De l’Informatique de l’Etat). 2017. “De country’s capacity to participate in the informa- 22 Milliards Cfa En 2015, La Facture Téléphonique tion society, without which e-government devel- de l’Etat Est Passée À Moins de 12 Milliards En opment efforts are of limited immediate use. See 2016.” February 20. https://www.adie.sn/fr/%C2% United Nations (2016). AB-de-22-milliards-cfa-en-2015-la-facture-t%C3% 6 See “ICT Development Index 2016,” at: A9l%C3%A9phonique-de-l%E2%80%99etat-est- http://www.itu.int/net4/ITU-D/idi/2016/#idi pass%C3%A9e-%C3%A0-moins-de-12-milliards. 2016byregion-tab. 7 Examples include the PAYE system, Treasury Brown, Greg. 2013. “Why Kenya’s Open Data Portal System, Electoral System, Digital Court Recording Is Failing—and Why It Can Still Succeed.” Sunlight System, Computerized Audit System, Public Foundation, September 23. https://sunlightfoundation. and Disciplined Forces Service Commissions com/2013/09/23/why-kenyas-open-data-portal-is- Systems, Automatic Fingerprint Identification failing-and-why-it-can-still-succeed/. System, Police GPS System, Crime Record Office System, Customs Tradenet System, Registrar- Centre for Public Impact. 2016. “The Kenya Open General and Registry of Companies Systems, Data Initiative.” https://www.centreforpublicimpact. Social Security Contributory Benefits and Pension org/case-study/open-data-kenya/. Systems, Integrated Hospital and Patient System at Nehru Hospital, Unallocated Stores System, Chowdhury, Anir, and Hasanuzzaman Zaman. 2014. and the Passport and Immigration System. See “Embedding Innovation in Government’s DNA: Lessons “Public Sector Computerisation,” at: http://prb. from A2I in Bangladesh.” Information Technology in pmo.govmu.org/English/Pages/Public-Sector- Developing Countries. http://www.iimahd.ernet.in/egov/ Computerisation.aspx. ifip/june2014/Bangladesh%20paper.htm. 8 See “e-Government Agency Services,” at: http://www.ega.go.tz/uploads/publications/ Dahan, Mariana. 2015. “Digital IDs: A Powerful cc58501e625c38f08f4649fb984a032c.pdf. Platform for Enhanced Service Delivery across 90 Leapfrogging: The key to Africa’s Development? All Sectors.” Information and Communications for and World Economic Forum. 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Republic of Mauritius. 2013. e-Government Strategy IMF (International Monetary Fund). 2017. Côte 2013–2017. http://mtci.govmu.org/English/Documents/ d’Ivoire: Letter of Intent, Memorandum of Economic eGovernment%20Strategy%20finalv1.pdf. Financial Policies, and Technical Memorandum of Understanding. Washington, DC: IMF. https://www. ———. 2017. “ICT: New e-Services Launched for imf.org/External/NP/LOI/2017/CIV/060117.pdf. Prompt and Effective Public Service Delivery.” News, July 17. http://www.govmu.org/English/News/Pages/ International Chamber of Commerce, Transparency ICT--New-e-Services-launched-for-prompt-and- International, United Nations Global Compact, effective-public-service-delivery.aspx. Governance 91 RwandaOnline. 2014. “How Online Platform Will United Republic of Tanzania. 2013. Tanzania e-Gov- Curb Queuing at Government Offices.” September 9. ernment Strategy. http://www.ega.go.tz/uploads/publ http://www.rwanda-online.rw/press-detail.php?url= ications/130d4c2a171b40465b9af331bb58cce5.pdf. How+online+platform+will+curb+queuing+at+gover nment+offices+&ref=2. Waema, Timothy, and Edith Adera, eds. 2011. Local Governance and ICTs in Africa: Case Studies Scott, Anna. 2016. Case Study: Burkina Faso’s Open and Guidelines for Implementation and Evaluation. Elections. London: Open Data Institute. https://theodi. Pambazuka Press, International Development Research org/case-study-burkina-fasos-open-elections. Centre. https://www.idrc.ca/en/book/local-gover- nance-and-icts-africa-case-studies-and-guidelines- Turianskyi, Yarik, and Steven Gruzd. 2016. “Can implementation-and-evaluation. Technological Advances Improve Governance in Africa?” Mail & Guardian, April 27. https://mg.co. World Bank. 1992. Governance and Development. za/article/2016-04-27-can-technological-advances- World Bank, Washington, DC. http://documents. improve-governance-in-africa/. worldbank.org/curated/en/604951468739447676/ Governance-and-development. UNDESA (United Nations Department of Economic and Social Affairs), UNDP (United ———. 2011. Rwanda: eRwanda Project. Washington, Nations Development Programme), and UNESCO DC: World Bank. http://documents.worldbank. (United Nations Educational, Scientific and Cultural org/curated/en/999461468305057195/Rwanda- Organization). 2012. Governance and Development. eRwanda-Project. http://www.un.org/millenniumgoals/pdf/Think%20 Pieces/7_governance.pdf. ———. 2016. World Development Report 2016: Digital Dividends. Washington, DC: World Bank. https://doi. UNDP (United Nations Development Programme). org/10.1596/978-1-4648-0671-1. 1997. Governance for Sustainable Human Development. http://www.pogar.org/publications/other/undp/gover- ——— . 2017. World Development Report 2017: nance/undppolicydoc97-e.pdf. Governance and the Law. Washington, DC: World Bank. http://www.worldbank.org/en/publication/ United Nations. 2016. E-Government Survey 2016: wdr2017. E-Government in Support of Sustainable Development. http://workspace.unpan.org/sites/Internet/ Documents/UNPAN97453.pdf. ICT 7 Information and Communications Technologies I. The Mobile Revolution and growth. It benefits all types of firms regardless of size or trade orientation, and has a larger impact on Information and communications technology (ICT) is small and medium-size enterprises than large firms revolutionizing the world. Not only is ICT an impor- (Clarke, Qiang, and Xu 2015). However, the capacity tant sector on its own, it affects every other sector of of firms to absorb new technologies varies, limiting the economy. As ICT evolves in speed, from narrow- their impact (Schmidt 2010). band to broadband, and in scope, from connecting just humans to machines, it is having an even greater effect. Important trade-related aspects of ICT are relevant in a globalized economy. There is a reciprocal relation- The rapid decline in the cost of digital technologies, ship between trade and ICT (TMG 2007). An enabling particularly the Internet, has dramatically reduced trade environment facilitates the development of ICT, transaction costs, benefiting economic development while ICT fosters and enables goods and services trade. in three ways (World Bank 2016). First, the Internet Three dimensions characterize ICT-related trade: trade helps overcome information asymmetry by better in ICTs (for example, international communications), linking sellers and buyers. Second, lower transac- trade in ICT-enabled services (for example, business tion costs enabled by the Internet raise productivity processes outsourcing), and ICT as a general facilita- in businesses. Third, the Internet triggers innovation tor of other types of trade (for example, farmers using associated with the so-called “new economy,” which is text messaging to check market prices). Barriers that characterized by new business models, customization impede the development of ICT-related trade, such of services, and industry disruption. Yet, the dividends as insufficient investment, can be addressed through from the benefits of digital technologies lag. One trade commitments. reason is the digital divide in Internet access across and within countries. Adoption alone is insufficient ICTs and particularly mobile networks have grown to benefit from ICT. Countries also need to work on rapidly in Africa. The speed of mobile evolution, policy “analog complements”: strengthening competition, reforms, and ways to finance investment is distinct adapting workers’ skills, and ensuring that institutions among infrastructure sectors in the region (Williams, are accountable. Mayer, and Minges 2011). The availability and quality of services have increased and prices have decreased. Broadband Internet is a general purpose technology Sector reform has driven this radical change. Markets cutting across all sectors to deliver efficiency and have been opened and regulatory agencies created. productivity gains. Firm-level studies find that web This has resulted in competition spurring investment. use by local businesses is linked to labor productivity The region has skipped fixed telephone lines and 95 96 Leapfrogging: The key to Africa’s Development? jumped into the digital age (Pew 2015). Cell phones of digital skills. Other factors are internal to the sector, are used for more than basic voice communications in such as imperfect competition, lack of open access to Africa; sending text messages and taking pictures are fiber optic backbone networks, and constrained spec- popular activities. In some countries, mobile banking trum allocation. Government strategies to narrow the is common. Mobile networks are generating innova- digital gap through universal service funds have been tion and boosting incomes, with farmers using cell largely ineffective throughout the region. Solutions phones to check market prices and traders accepting to these challenges require a top-level, multisector payments in mobile money (The Economist 2016). approach. They can be alleviated through a more However, there remains a large digital divide in Sub- competitive market environment, including embed- Saharan Africa, due in part to large rural populations ding open access principles in sector regulations, and high costs. supporting training for regulators, providing more efficient and speedier spectrum allocation, improving The international development agenda stresses the universal service programs, and implementing initia- importance of ICT infrastructure for achieving the tives for promoting mass digital literacy. Sustainable Development Goals (SDGs). The ninth SDG calls on countries to build “...resilient infrastruc- ture, promote sustainable industrialization and foster Rapid Progress through Substitution II.  innovation” (United Nations 2015). The relevance of and New Approaches infrastructure investments for development links to their cross-cutting nature. Despite the importance of Africa has several relevant leapfrogging experiences ICT for goal 9, only one tracking indicator was estab- in the ICT sector. The region has experienced rapid lished: “significantly increase access to information growth of mobile networks and, more recently, the and communications technology and strive to provide deployment of a growing number of submarine cables. universal and affordable access to the Internet in the Some Sub-Saharan African countries stand out for least developed countries by 2020” (SDG Target 9c). mobile connectivity on par with developed nations Although the target refers specifically to the least devel- in the application of mobile communications in other oped countries, it is highly relevant for Africa, since sectors, and in innovative approaches to mobile broad- 33 of the 47 least developed countries are in Africa. band network deployment. Leapfrogging has often been stimulated as a substitute for inadequate alternatives Although Sub-Saharan Africa has made impressive (for example, a lack of fixed telephone lines or limited progress in expanding digital infrastructure over the formal banking services); in other cases, leapfrogging past few years, there is still further to go to expand has been driven by public-private partnerships. broadband infrastructure, lower costs, and leverage benefits more fully. Much of this infrastructure has Mobile communications are the one type of ICT been constructed by the private sector under varying where Africa has been closing the gap with the rest of degrees of competition (Minges 2016). Despite the the world. Although fixed telephone networks have steady gains, the region continues to lag all others in been around since the early 1900s, access was always access to ICT. This is partly due to the link between limited in Sub-Saharan Africa, at less than 2 percent per capita income and access to telecommunications. of the population (figure 7.1, panel a). Once the first However, in many cases, the market is not functioning mobile networks launched in Sub-Saharan Africa as well as it could. The problems are sometimes linked in 1989, they grew rapidly. The gap between Sub- to exogenous factors, such as poor governance, lack of Saharan Africa and the rest of the world dropped from electricity, high cost of doing business, and low level 99 percent in 1989 to 23 percent by 2015 (figure 7.1, Information and Communications Technologies 97 FIGURE 7.1: Telephones per 100 People a. Landline phones b. Mobile phones 20 100 18 90 16 80 14 70 12 60 10 50 8 40 6 30 4 20 2 10 0 0 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Sub-Saharan Africa World Source: Adapted from World Bank data. panel b). The reason for the popularity of mobile in The rapid growth of submarine cables in Sub-Saharan Africa is largely contextual: ineffective monopoly land- Africa is another area where there has been astounding line operators that did not pose a strong competitive leapfrogging. Before 2009, there was only one monop- threat to new mobile operators, the lower investment oly-controlled cable on Africa’s west coast and only a costs of greenfield wireless networks, huge pent-up handful of countries were connected (map 7.1, panel demand due to the lack of landlines, and the prepaid a). The deployment of cables on Africa’s east coast in model that fit the region’s economic circumstances. 2009 led to a surge of undersea fiber optic networks. MAP 7.1: Undersea Fiber Optic Cables in Africa, 2009 and 2016 a. 2009 AFRICA AFRICA b. 2016 UNDERSEA FIBER OPTIC CABLES UNDERSEA FIBER OPTIC CABLES 2009 2016 Mediterranean Undersea Cables 2009 UNITED 2016 UNITED Mediterranean Undersea Cables Atlas Offshore 320 gigabits Active 320 gigabits UNITED KINGDOM UNITED KINGDOM Atlas Offshore Active 1280 gigabits KINGDOM KINGDOM SAS-1 Active Highbridge Highbridge 1280 gigabits Bude Bude SAS-1 Active 3840 gigabits Bude Highbridge Bude Highbridge SEA-ME-WE 4 Active 3840 gigabits Penmarc'h FRANCE Penmarc'h FRANCE SEA-ME-WE 4 Active 3840 gigabits Penmarc'h FRANCE Penmarc'h FRANCE 3840 gigabits I-ME-WE Active Marseille Monaco Marseille Monaco I-ME-WE Active Vigo Vigo 3840 gigabits Marseille Monaco Marseille Monaco Vigo PORTUGAL SPAIN Vigo PORTUGAL SPAIN 3840 gigabits EIG Active PORTUGAL SPAIN Seixal Lisbon Palermo PORTUGAL SPAIN Seixal Lisbon Palermo EIG Active Sesimbra MONACO Sesimbra MONACO Lisbon Palermo Chipiona Catania Lisbon Palermo Chipiona Catania Seixal Portimão Seixal Portimão Sesimbra MONACO Annaba Bizerte Sesimbra MONACO Annaba Bizerte Portimão Chipiona Gibraltar (UK) Catania Portimão Chipiona Gibraltar (UK) Catania Annaba Bizerte Asilah Annaba Bizerte Asilah Gibraltar (UK) TUNISIA LEBANON Tripoli Gibraltar (UK) TUNISIA LEBANON Tripoli Asilah Casablanca Asilah Casablanca TUNISIA LEBANON Tripoli Tripoli TUNISIA LEBANON Tripoli Tripoli Casablanca Casablanca Tripoli MOROCCO Alexandria Tripoli MOROCCO Alexandria MOROCCO Cairo Suez PAKISTAN MOROCCO Cairo Suez PAKISTAN Alexandria Alexandria Buena Vista ALGERIA Suez PAKISTAN Buena Vista ALGERIA Suez PAKISTAN Alta Vista Cairo Alta Vista Cairo Buena Vista ALGERIA LIBYA Buena Vista ALGERIA LIBYA Alta Vista ARAB REP. Alta Vista ARAB REP. OF EGYPT Fujairah OF EGYPT Fujairah LIBYA ARAB REP. Karachi LIBYA ARAB REP. Karachi Fujairah SAUDI U.A.E. Fujairah SAUDI U.A.E. OF EGYPT Karachi ARABIA Muscat OF EGYPT Karachi ARABIA Muscat SAUDI U.A.E. Jeddah INDIA SAUDI U.A.E. Jeddah INDIA ARABIA Muscat ARABIA Muscat Jeddah INDIA Jeddah INDIA MAURITANIA Port Sudan OMAN Mumbai MAURITANIA Port Sudan OMAN Mumbai MAURITANIA CABO Nouakchott Port Sudan OMAN Mumbai MAURITANIA CABO Nouakchott Port Sudan OMAN Mumbai CABO Nouakchott VERDE SUDAN CABO Nouakchott VERDE SUDAN Praia Dakar Praia Dakar To VERDE SENEGAL SUDAN VERDE SENEGAL SUDAN Malaysia, Praia Dakar Banjul Praia Dakar Banjul To Chennai Chennai Thailand, SENEGAL SENEGAL Malaysia, Singapore Banjul THE GAMBIA Bissau Djibouti DJIBOUTI Chennai Banjul THE GAMBIA Bissau Djibouti DJIBOUTI Chennai Thailand, THE GAMBIA GUINEA BENIN THE GAMBIA GUINEA BENIN Singapore Bissau Djibouti Kochi Bissau Djibouti Kochi GUINEA GUINEA-BISSAU BENIN Conakry TOGO NIGERIA DJIBOUTI GUINEA GUINEA-BISSAU BENIN Conakry TOGO NIGERIA DJIBOUTI SIERRA LEONE CÔTE GHANA Kochi SRI SIERRA LEONE CÔTE GHANA Kochi SRI Conakry NIGERIA Conakry NIGERIA GUINEA-BISSAU TOGO Freetown D’IVOIRE Cotonou GUINEA-BISSAU LANKA TOGO Freetown D’IVOIRE Cotonou LANKA SIERRA LEONE CÔTE GHANA Lomé Lagos SRI Colombo SIERRA LEONE CÔTE GHANA Lomé Lagos SRI Colombo Freetown D’IVOIRE Cotonou Monrovia Abidjan Accra CAMEROON LANKA Freetown D’IVOIRE Cotonou Monrovia Abidjan Accra CAMEROON LANKA Lomé Lagos LIBERIA Limbé SOMALIA Colombo To Lomé Lagos LIBERIA Limbé SOMALIA Colombo Monrovia Abidjan Accra CAMEROON Douala PenangMonrovia Abidjan Accra CAMEROON Douala LIBERIA Limbé Kribi SOMALIA To LIBERIA Limbé Kribi SOMALIA Douala Mogadishu Penang MALDIVES Douala Mogadishu MALDIVES To Bata Bata Penang Kribi MALDIVES Kribi MALDIVES To Bata Santana Libreville CONGOMogadishu Bata Santana Libreville CONGOMogadishu Penang GABON KENYA GABON KENYA Santana Libreville CONGO Santana Libreville CONGO GABON EQU. GUINEA KENYA GABON EQU. GUINEA KENYA SEYCHELLES SEYCHELLES EQU. GUINEA SÃO TOMÉ AND Pointe-Noire Mombasa Victoria EQU. GUINEA SÃO TOMÉ AND Pointe-Noire Mombasa Victoria PRÍNCIPE SEYCHELLES PRÍNCIPE SEYCHELLES SÃO TOMÉ AND Mombasa To SÃO TOMÉ AND Mombasa Pointe-Noire Muanda Victoria TANZANIA Fortaleza, Pointe-Noire Muanda Victoria TANZANIA PRÍNCIPE Dar Es Salaam To Brazil PRÍNCIPE Dar Es Salaam Muanda TANZANIA Fortaleza, Muanda TANZANIA Cacuaco Cacuaco Dar Es Salaam Brazil Dar Es Salaam Luanda Luanda Cacuaco COMOROS Cacuaco COMOROS Luanda Luanda COMOROS Moroni COMOROS Moroni ANGOLA Kaouéni ANGOLA Kaouéni Moroni Moroni West Coast ANGOLA Kaouéni Mayotte West Coast ANGOLA Kaouéni Mayotte West Coast SAT3/SAFE 120 gigabits Active Mayotte (Fr.) West Coast SAT3/SAFE 340 gigabits Active Mayotte (Fr.) (Fr.) (Fr.) 120 gigabits MOZAMBIQUE Toamasina 340 gigabits MOZAMBIQUE Toamasina SAT3/SAFE Active Terre- MAURITIUS SAT3/SAFE Active 1920 gigabits Terre- MAURITIUS Rouge Rouge MOZAMBIQUE NAMIBIA Toamasina Terre- MAURITIUS MADAGASCAR Savanne 1920 gigabits MaIN OnE Active MOZAMBIQUE NAMIBIA Toamasina Terre- MAURITIUS MADAGASCAR Savanne Rouge Rouge NAMIBIA MADAGASCAR Savanne Saint-Paul Réunion MaIN OnE Active 2500 gigabits NAMIBIA MADAGASCAR Savanne Saint-Paul Réunion Swakopmund Saint-Paul Réunion Toliary (Fr.) 2500 gigabits GLO-1 ActiveSwakopmund Swakopmund Saint-Paul Réunion Toliary (Fr.) East Coast Swakopmund Toliary (Fr.) Maputo GLO-1 Active 5120 gigabits Toliary (Fr.) Maputo East Coast SEAS 320 gigabits Q3 2012 SWAZILAND SWAZILAND 320 gigabits Maputo 5120 gigabits WACS Q4 2011 Maputo SEAS Q3 2012 1280 gigabits SWAZILAND SOUTH Mtunzini SWAZILAND SOUTH Mtunzini TEAMs Active AFRICA WACS Q4 2011 AFRICA 1280 gigabits SOUTH Mtunzini LESOTHO 5120 gigabits SOUTH Mtunzini LESOTHO TEAMs Active 1280 gigabits AFRICA LESOTHO 5120 gigabits AFRICA LESOTHO Seacom Active ACE Q3 2012 1280 gigabits Yzerfontein Melkbosstrand Yzerfontein Melkbosstrand Seacom Active 1280 gigabits Yzerfontein Melkbosstrand Cape Town ACE Q3 2012 Yzerfontein Melkbosstrand Cape Town Lion2 Q2 2012 Cape Town 12800 gigabits Cape Town 1280 gigabits Lion2 Q2 2012 1300 gigabits IBRD 43152 | SEPTEMBER 2017 12800 gigabits Lion Active This map was produced by the Map Design Unit of The World Bank. 1300 gigabits IBRD 43152 | SEPTEMBER 2017 Lion Active This map was produced by the Map Design Unit Theofboundaries, colors, denominations and any other information The World Bank. SAex Q2 2013 4720 gigabits The boundaries, colors, denominations and any shown other on this map do not imply, on the part of The World Bank information SAex Q2 2013 4720 gigabits EASSy Active shown on this map do not imply, on the part ofGroup, any judgment The World Bank on the legal status of any territory, or any EASSy Active Group, any judgment on the legal status of any territory, or or endorsement anyacceptance of such boundaries. SOURCE: https://manypossibilities.net/african-undersea-cables/ SOURCE: https://manypossibilities.net/african-undersea-cables/ endorsement or acceptance of such boundaries. SOURCE: https://manypossibilities.net/african-undersea-cables/ SOURCE: https://manypossibilities.net/african-undersea-cables/ Source: Adapted from https://manypossibilities.net/african-undersea-cables/. 98 Leapfrogging: The key to Africa’s Development? By 2016, all sea-facing African countries except Eritrea with 96 percent of the households having one (com- and Guinea-Bissau were connected to submarine pared with less than 10 percent with a landline), a cables; seven countries were connected to three or figure higher than that in the United States (figure more cables (map 7.1, panel b). The growth has been 7.2, panel a). stimulated by a combination of rising demand for Internet capacity, open access to submarine cables, Today, there is widespread mobile broadband cov- pan-African telecommunications operators, and assis- erage, with a 3G signal reaching 99 percent of the tance from development agencies. population and 4G/LTE covering over 75 percent of South Africa’s inhabitants. These are the highest lev- South Africa is notable as one of the first Sub-Saharan els in Sub-Saharan Africa and significantly above the African countries to introduce competition in its world average (figure 7.2, panel b). Additional com- mobile sector. Today, cell phones are as common in petition through the market entry of Cell C in 2001 South Africa as they are in the United States, with 89 and the incumbent fixed line operator Telkom in 2010 percent of adults having a cell phone (Pew 2015). has sustained growth. MTN and Vodacom have also Although South Africa had an analogue mobile net- been instrumental in introducing cell phones to other work in the 1980s, it was essentially restricted to the Sub-Saharan African countries, with subsidiaries in 19 well-off, due to high costs and low coverage. The markets in the region (Mbarika and Mbarika 2006). launch of second-generation mobile and the introduc- tion of competition between the two private compa- Kenya provides several examples of ICT policy and nies, MTN and Vodacom, in 1994 transformed the technical innovations. Although the East African industry. South Africa and Guinea were the only two nation faces the sea, it long relied on expensive sat- Sub-Saharan African countries with competition at ellite connectivity, because of the lack of access to the time. By the 2001 Census, almost a third of the submarine cables. The government felt this was a households in South Africa had a cell phone; by the major obstacle to the country’s becoming an ICT hub 2011 Census, almost nine in 10 households had a cell (Msimang 2011). The government created a public- phone. By 2016, cell phones were almost ubiquitous, private partnership to build an open-access undersea FIGURE 7.2: Mobile Leapfrogging in South Africa a. Households with mobile phone (%) b. 4G/LTE coverage (% of population) 100 80 90 70 80 60 70 60 50 50 40 40 30 30 20 20 10 10 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 South Africa World Sources: Adapted from Statistics South Africa; Centers for Disease Control; Vodacom and Ericsson. Information and Communications Technologies 99 fiber optic cable to the United Arab Emirates. The East The KT Rwanda Network builds the network and acts African Marine System undersea cable was launched as a wholesaler, selling capacity to existing mobile in 2009. The country is now connected to three sub- operators and Internet service providers.5 The 4G marine cables and this will double by the end of 2018. network was launched in 2014, with the target of Kenya has emerged as the leading bandwidth hub in covering 95 percent of the population by 2018. One East Africa, providing international Internet capacity reason for this model is that the government wanted for landlocked countries, including Ethiopia, Rwanda, to accelerate the rollout of superfast mobile technol- Uganda, and soon South Sudan. ogy. The existing mobile operators were hesitant to deploy 4G until they had recovered the investment Kenya is also a trendsetter in the application of mobile in their 3G networks. Rwanda is the first country in to the financial sector. In 2007, mobile operator the world to adopt a single wholesale network for 4G Safaricom launched M-Pesa, the first mobile money (GSMA 2015). service in Africa. The lack of or costs of formal banking quickly stimulated take-up, as did a relaxed regulatory The experiences of China illustrate how the adoption framework to allow the service to develop. Kenya has of digital technologies has triggered economic and one of the highest rates of mobile money penetration social changes (box 7.1). in the world, strengthening financial inclusion in the country. The share of the population ages 15 years and older with an account rose from 42 percent in Enhancing Conditions for Digital III.  2011 to 75 percent in 2014.1 A success factor is the Leapfrogging light-handed regulatory approach banking officials took in allowing mobile money.2 Mobile money has ICT is an important sector on its own and in cross cut- spawned add-on applications, such as links to savings ting with impacts across other sectors. Leapfrogging and insurance and payments for e-commerce. One within the sector is dependent on a proper regulatory example combines cell phones, mobile money, and environment to stimulate competition, investment, off-grid electricity. M-Kopa Solar3 produces solar pan- and innovation. Its impact on other sectors is depen- els to cater to the huge demand for electricity in rural dent on regulations as well as knowledge of how to areas.4 A challenge is that most rural dwellers cannot apply ICT to areas such as finance, agriculture, health, afford the outright purchase of a panel. M-Kopa Solar and so forth. Other necessary preconditions include provides a solution by charging a small daily amount, a clear sector strategy, human capacity development, with payments made using mobile money. Once the and innovation support. Once these preconditions panel is paid for, it belongs to the purchaser. To ensure are in place, there are several potential technologi- compliance, the panel circuitry is remotely controlled cal options for leapfrogging, such as the Internet of over the mobile network. things, drones, new spectrum sources (such as analog broadcasting and white space), and jumping straight Although Rwanda is a landlocked, least developed to 4G and 5G networks. country, this has not stood in the way of government aspirations for the ICT sector (UN-OHRLLS 2017). An African countries need the right enabling framework, innovative government-led initiative is the world’s first including the creation of a sector regulator, introduc- wholesale-retail model for a fourth-generation mobile tion of competition, and private sector investment. network. The KT Rwanda Network, a joint venture of The World Trade Organization outlines six basic Korea Telecom and the government, was established in principles for an appropriate regulatory environment 2013, among other things, to deploy 4G technology. to foster a vibrant telecommunications sector (WTO 100 Leapfrogging: The key to Africa’s Development? Box 7.1: Leapfrogging of China’s Digital Economy The past two decades have witnessed the rapid devel- and, in some cases, even exceed the world’s top opment of China’s Internet-based industry. Internet level. The development and utilization of up-to- enterprises have made great achievements in techni- date technologies by financial enterprises have cal expertise, business models, and changes brought been promoted for increasing efficiency, opti- to the economy and society, and even assumed a mizing user experience, and maintaining market leading position in the world in some ways. The main competitiveness. For example, during the annual experiences include the following: online “11 Day Global Festival” on November 11, 2016, some 120,000 payment transactions 1. A complete e-commerce platform and network were processed per second during peak times has been established. The development of (Azila 2016). credit, payment, and other new finance infra- structure has been boosted to provide inclusive 4. The new economy represented by the Internet financial services for individuals and small and has developed rapidly, brought about huge micro businesses. Financial technology enter- social and economic benefits, and provided new prises have been supported to construct a global energy for China’s economic development. The payment network, making online and mobile e-commerce company Alibaba is an example. In payment more convenient. China’s third-party fiscal year 2016, total sales on the Alibaba plat- payment agencies have become the largest form exceeded Y 3 trillion (around US$4.5 billion), mobile payment companies in the world. Taobao, which was more than the total sales of Walmart, Dangdang, Jingdong Mall, and other shopping historically the world’s largest retailer (Jing 2016). websites have broken the constraints of time and The 18-year development of Alibaba has sur- space; provided convenient, low-cost channels passed the 54-year development of Walmart. for linking buyers and sellers; and promoted the development of small enterprises. 5. With the transformation of urban development and the evolution of smart cities, advanced e-gov- 2. Various platforms have been established to ernment services have accelerated. Network infor- enhance access to local content and facilitate mation technology has created a new pattern of learning. The ratio of Internet users using instant economic and social development where the rela- messaging has reached 91 percent. Tencent, tions between people and services, people and cit- Sina, Netease, Sohu, and Baidu have become ies, people and society, people and resources, and important platforms for people to communicate people and the future are transformed. In 2015, and obtain information through the Internet. Alipay launched the “City Service” smartphone These platforms have spawned a self-media app, which allows users to carry out a range of era, making the Internet a source for user-gen- tasks related to urban living, including paying for erated content and an important channel for traffic tickets and utility bills, scheduling medical transmission. appointments, and accessing information about traffic and public transportation. Another example 3. In areas such as customer-oriented businesses, is “Sesame Credit,” where users of the Alipay cloud computing, big data, and recognition tech- digital payment service generate real-time credit nology, China’s Internet enterprises have reached scores; those with high scores accrue rewards, such (continued on next page) Information and Communications Technologies 101 Box 7.1: Leapfrogging of China’s Digital Economy (continued) as avoiding car rental deposits or getting quick signed up for the app in nine months, equivalent to airport security checks. Ant Forest, an app from one-fifth of China’s adult population. The lifestyle Ant Financial, is a game that tracks users’ behavior changes the app induced are estimated to have to help them reduce their carbon footprint. Some avoided 150,000 tons of carbon emissions (Green 200 million of Ant Financial’s 450 million users Digital Finance Alliance 2017). 1996). Although it was published over 20 years ago, urban and rural zones. Although many African the paper remains applicable today. countries collect funding for universal service through a levy on operators, they have not always • The principles include competitive safeguards for been effective in dispersing the money. One study anti-competitive behavior, such as cross-subsidi- finds that most universal service funds in the zation and control over key bottleneck facilities region have had “deficiencies in fund structure, (such as towers and fiber optic backbones). Some management and operation ‘requiring’ significant governments have promoted the separation of reform and restructuring in order to be trans- wholesale and retail services, open access to key formed into functional and effective investment facilities, and infrastructure sharing to encourage support vehicles for unserved and underserved a more competitive market environment. areas” (GSMA 2014). Contributions to universal • A second principle is interconnection, which refers service funds combined with other sector-specific to the physical connection of different operator taxes are burdensome in some countries, divert- networks. The lack of interconnection rules for ing money from investment and raising prices transparent, cost-based wholesale pricing has for consumers (GSMA 2017b). often resulted in the use of multiple SIM cards, • Clear rules about licensing requirements for market since it is cheaper to call on the same network (on- entry are another principle. This includes dis- net) than to make calls across networks (off-net). tinguishing between types of licenses when they Several African regulators have established cost- are needed, and publicly available information based wholesale prices for mobile voice and text. about licensing criteria (that is, the time required • The principles recognize the right of countries to reach a decision, terms and conditions, and so to adopt universal service mechanisms adminis- forth). A challenge is to price licenses correctly to tered in a transparent, nondiscriminatory, and attract strong players, while at the same time not neutral manner. This is particularly relevant for charging so much as to discourage market entry. Sub-Saharan Africa, where there is a wide gulf • The establishment of an independent sector regu- between ICT facilities and access in urban and lator is a key principle. The regulatory agency rural areas. Many countries in the region have should be separate from suppliers of telecommu- struggled with the design of effective universal nications services. The decisions of and proce- service programs. Often the type of universal dures used by regulators must be impartial with service initiative has not had widespread impact, respect to all market participants. Although most resulting in an ongoing digital divide between African countries have established an ICT sector 102 Leapfrogging: The key to Africa’s Development? regulatory agency, in practice some struggle for The need to stimulate innovation is critical for trigger- political independence, due to the continuing ing new uses for ICTs that benefit the economy and government ownership in incumbent operators. society. Most innovation frameworks are based on top- • Finally, efficient mechanisms are needed for the down theories. These models see innovation output assignment of scarce resources. This is especially reflected by patents, trademarks, and scientific journal important in the African context, where most citations, and driven by national innovation strategies access is through wireless networks that require that emphasize large-scale research and development frequency spectrum. Transparent procedures are (R&D). The difference between top-down R&D–based needed for the allocation of scarce resources, such innovation and the generation of bottom-up ideas is as frequencies, numbers, and rights of way. especially relevant in emerging economies, where “innovation in developing countries is more incremental An ICT sector strategy is vital for providing guidance than radical and takes place in an informal setting more and accountability and describing how digital tech- often than it does in formal R&D laboratories” (Cornell nologies fit in with overall national development plans. University, INSEAD, and WIPO 2015). Innovation in The most effective ICT strategies are those with realis- developing countries is often “under the radar” of tra- tic targets and corresponding budgets and mechanisms ditional indicators, such as patents and R&D (Zanello, for monitoring and evaluation. Ongoing, multiyear Fu, and Essegbey 2013). Almost 80 percent of the plans offer some predictability about the government’s firms surveyed in Ghana reported introducing some direction for the sector, providing reassurance for the form of innovation between 2011 and 2013 (Fu et al. private sector. 2014). Their largest external constraints to innova- tion were markets dominated by large enterprises and The quality of competition matters. The strength of tele- institutional inflexibility in regulations and standards. communications operators, their involvement in other Governments need to encourage ICT–based, disrup- countries, and scale make a difference. Governments tive innovation that challenges traditional industries should award major telecommunications licenses (Cornell University, INSEAD, and WIPO 2015). In based on a variety of criteria, including the operator’s Africa, thousands of digital entrepreneurial innova- experience, particularly in other African countries; tors have clustered in tech communities across the proven technical expertise; financial depth; and will- continent that need to be encouraged and stimulated ingness to engage in a significant way with the social (Firestone and Kelly 2016). and economic goals of the country. Digital skills across various domains are essential for IV. Future Research Sub-Saharan Africa to be successful in exploiting ICT opportunities. Governments need the right skills to There is a consensus that ICT infrastructure invest- create policies and regulate the sector. Technical skills ment in the region requires a predictable regulatory are needed across sectors to develop ICT applications environment combined with competition. Although and services. Digital literacy is essential for citizens most African countries have created a competitive mar- to make productive use of the Internet. The transi- ket with regulatory institutions, rates of penetration tion to broadband and Internet is often constrained vary. Perhaps it is not just the creation of a regulator because it requires a higher level of skills than using that is important, but how it regulates, and not just a mobile phone. competing operators, but also the intensity of competi- tion. A more granular analysis is needed that examines why some countries do better than others. Information and Communications Technologies 103 Sub-Saharan African governments are adopting ambi- broadband networks promise great potential for more tious ICT sector plans, and some are creating software impactful applications. However, there is scarce infor- parks (UN-OHRLLS 2017). The premise is that emerg- mation about the effects of these technologies in the ing digital economies will generate thousands of jobs. region and examples of noteworthy scalable applica- However, there is a lack of precision about the link tions across sectors such as health and education. between the digital economy in developing countries and employment. More information is needed about Similarly, emerging fifth-generation networks and the labor market supply and demand and the types of Internet of things connecting devices and machines digital jobs that will be created and how. can have a significant impact in Africa. In Ghana, sen- sors are used to track vaccines in the supply chain, to There is a growing body of literature on the impact of verify that they have remained at the proper tempera- narrowband mobile applications across various sec- ture (Scherf 2016). A study predicts that around 40 tors, such as voice calls for agricultural market prices percent of the value-added from the Internet of things (World Bank 2017), text messaging for health infor- will be generated in developing countries by 2025 mation (USAID 2014), and alerts and mobile money (McKinsey & Company 2015). However, despite the to strengthen financial inclusion and reduce costs immense development potential, there are few practi- (GSMA 2017a). Third- and fourth-generation mobile cal examples of the Internet of things in Africa. 104 Leapfrogging: The key to Africa’s Development? Endnotes Green Digital Finance Alliance. 2017. Scaling Citizen Action on Climate: ANT Financial’s Efforts Towards 1 http://datatopics.worldbank.org/financialinclusion/ a Digital Finance Solution. https://docs.wixstatic. country/kenya. com/ugd/3d4f2c_b35460f1908f4404b9446617e- 2 https://www.alt-m.org/2016/06/28/finance- b25aca6.pdf. for-all-kenyas-m-pesa/. GSMA. 2014. Sub-Saharan Africa: Universal Service 3 http://solar.m-kopa.com/about/. Fund Study. https://www.gsma.com/publicpolicy/ 4 According to a 2015 survey, only 16 percent of wp-content/uploads/2012/03/Sub-Saharan_ rural households had electricity (NMCP, KNBS, Africa_USF-Full_Report-English.pdf. and ICF International 2016). ——— . 2015. Rural Coverage: Strategies for 5 For more on the technical details behind the 4G Sustainability . http://www.gsma.com/mobil- network, see Nokia (2014). efordevelopment/wp-content/uploads/2015/07/ Rural_coverage_strategies_for_sustainability.pdf. ———. 2017a. The State of Mobile Money in Sub- References Saharan Africa: 2016. https://www.gsma.com/ mobilefordevelopment/programme/mobile- Azila. 2016. “Infographic: Double 11 Sales, and money/2016-state-mobile-money-sub-saharan- Engagement, Soar.” http://www.alizila.com/info- africa. graphic-double-11-sales-and-engagement-soar/. ———. 2017b. Taxing Mobile Connectivity in Sub- Clarke, George R. G., Christine Zhenwei Qiang, Saharan Africa: A Review of Mobile Sector Taxation and Lixin Colin Xu. 2015. “The Internet as and Its Impact on Digital Inclusion. https://www. a General-Purpose Technology: Firm-Level gsma.com/mobilefordevelopment/programme/ Evidence from around the World.” Policy Research connected-society/taxing-mobile-connectivity- Working Paper 7192, World Bank, Washington, sub-saharan-africa-review-mobile-sector-taxation- DC. http://documents.worldbank.org/curated/ impact-digital-inclusion. en/630411468338366817/The-internet-as-a- Jing, Meng. 2016. “Alibaba Becomes the World’s general-purpose-technology-firm-level-evidence- Largest Retailer.” China Daily, April 6. http://www. from-around-the-world. chinadaily.com.cn/business/tech/2016-04/06/ Cornell University, INSEAD, and WIPO. 2015. The content_24315726.htm. Global Innovation Index 2015: Effective Innovation Mbarika, Victor, and Irene Mbarika. 2006. “Africa Policies for Development. https://www.globalinno- Calling.” IEEE Spectrum, May 1. http://spectrum. vationindex.org/gii-2015-report#. ieee.org/telecom/wireless/africa-calling. Firestone, Rachel, and Tim Kelly. 2016. “The McKinsey & Company. 2015. The Internet of Things: Importance of Mapping Tech Hubs in Africa, Mapping the Value beyond the Hype. http://www. and Beyond.” Information and Communications for mckinsey.com/business-functions/digital-mckin- Development (IC4D) Blog, August 24. http://blogs. sey/our-insights/the-internet-of-things-the-value- worldbank.org/ic4d/importance-mapping-tech- of-digitizing-the-physical-world. hubs-africa-and-beyond. Minges, Michael. 2016. Rapid Desk Based Study: Fu, Xiaolan, Giacomo Zanello, George Owusu Summary of the Main Constraints to Increased Essegbey, Jun Hou, and Pierre Mohnen. 2014. Digital Connectivity in Sub-Saharan Africa. London: Innovation in Low Income Countries: A Survey Department for International Development. Report. http://r4d.dfid.gov.uk/pdf/outputs/ESRC_ https://www.gov.uk/dfid-research-outputs/ DFID/61071_DILIC_Report_2.pdf. rapid-desk-based-study-summary-of-the-main- Information and Communications Technologies 105 constraints-to-increased-digital-connectivity-in- United Nations. 2015. Transforming Our World: sub-saharan-africa#citation. The 2030 Agenda for Sustainable Development. Msimang, Mandla. 2011. Broadband in Kenya: https://sustainabledevelopment.un.org/post2015/ “Build It and They Will Come.” Washington, DC: transformingourworld. World Bank. http://www.infodev.org/highlights/ Williams, Mark, Rebecca Mayer, and Michael Minges. new-report-broadband-kenya. 2011. Africa’s ICT Infrastructure: Building on NMCP (National Malaria Control Programme), KNBS the Mobile Revolution. Washington, DC: World (Kenya National Bureau of Statistics), and ICF Bank. https://openknowledge.worldbank.org/ International. 2016. Kenya Malaria Indicator handle/10986/2325. Survey 2015. Nairobi, Kenya: Ministry of Health, UN-OHRLLS (United Nations Office of the High Republic of Kenya. Representative for the Least Developed Countries). Nokia. 2014. “Rwanda to Get Its First Commercial LTE 2017. Leveraging Investments in Broadband for Network with Managed Services.” Press Release, National Development: The Case of Rwanda and September 4. http://www.nokia.com/en_int/ Senegal. https://unohrlls.org/custom-content/ news/releases/2014/09/04/rwanda-to-get-its-first- uploads/2017/07/Leveraging-Investments-in- commercial-lte-network-with-managed-services. Broadband-for-National-Development-2017.pdf. Pew Research Center. 2015. Cell Phones in Africa: USAID (U.S. Agency for International Development). Communication Lifeline . http://www.pew 2014. mHealth in West Africa: A Landscape global.org/2015/04/15/cell-phones-in- Report. https://www.usaid.gov/documents/1860/ africa-communication-lifeline/. mhealth-west-africa-landscape-report. Scherf, Thorsten. 2016. “Internet of Things: Hype World Bank. 2016. World Development Report 2016: or Hope for Developing Countries?” KfW Digital Dividends. Washington, DC: World Bank. Development in Brief , June 23. https://www. http://www.worldbank.org/en/publication/ kfw-entwicklungsbank.de/PDF/Download- wdr2016. Center/PDF-Dokumente-Development-Research/ ———. 2017. ICT in Agriculture (Updated Edition): Internet-of-Things-–-hype-or-hope-for- Connecting Smallholders to Knowledge, Networks, developing-countries.pdf. and Institutions . Washington, DC: World Schmidt, Tobias. 2010. “Absorptive Capacity—One Bank. https://openknowledge.worldbank.org/ Size Fits All? A Firm-Level Analysis of Absorptive handle/10986/27526. Capacity for Different Kinds of Knowledge.” WTO (Wo rl d Tra d e Orga n i z a t i o n ) . 1 9 9 6 . Managerial and Decision Economics 31 (1): 1–18. “Telecommunications Services: Reference Paper.” doi:10.1002/mde.1423. https://www.wto.org/english/tratop_e/serv_e/ TMG (Telecommunications Management Group). telecom_e/tel23_e.htm. 2007. Trade in Information and Communication Zanello, Giacomo, Xiaolan Fu, and George Essegbey. Services: Opportunities for East and Southern Africa. 2013. “Innovation under the Radar in Low Income Washington, DC: World Bank. https://open- Countries: Evidence from Ghana.” United Nations knowledge.worldbank.org/handle/10986/19017. University World Institute for Development The Economist. 2016. “Mobile Phones Are Transforming Economics Research. “Learning to Compete: Africa.” https://www.economist.com/news/ Industrial Development and Policy in Africa.” middle-east-and-africa/21711511-mobile- Helsinki (Finland). June 24–25. https://www. phones-are-transforming-africa-where-they-can- wider.unu.edu/sites/default/files/Events/PDF/ get-signal-mobile-phones. Zanello.pdf. Concluding Remarks This book describes similarities behind successful governance, attractive business climate, and proac- leapfrogging experiences in various sectors. It also tive policies, leapfrogging can and does occur across uncovers challenges that need to be overcome to spur all sectors. Significantly, various innovations, such as transformational changes on the continent. The fol- mobile money and pay-as-you-go off-grid solar, were lowing key messages emerge. spawned in Africa, and are spreading to other devel- oping regions. This makes Africa very attractive as a test-bed for technological innovation and adaption. Leapfrogging is enhanced through the proper balance between top-down and bottom-up approaches. Not all leapfrogging attempts are successful. Africa needs both push and pull to transform. Top- African countries, as well as private investors, must be down initiatives are essential for creating an enabling willing to take risks and learn from failures, which are environment for large-scale investment, building major a normal part of the innovation ecosystem. Risks can infrastructure that triggers spillover effects, and boost- be mitigated in various ways, including the support ing knowledge to use and adapt technology. Bottom-up of development partners. A testing stage is essential innovation is essential for successfully adapting tech- for refining and adapting technology to the variety of nology to local needs and challenges. Generally, the local conditions on the continent. relationship has been lopsided, with more emphasis Failure allows technology to be refined and improved. on top-down adoption strategies. Better balance can be M-PESA began as effort to use mobile phones for achieved through greater effort to boost adaptation by microfinance loans and only later evolved to mobile investing in education and research and development money. Similarly, Lighting Africa continually adapted (R&D) and enhancing the enabling environment for the program based on the results of early field tri- innovation-driven entrepreneurship. als in Ghana and Kenya, and found that on-the- ground engagement needed dedicated local specialist Africa is not an exception, is not new to resources in addition to global expertise. leapfrogging, and is generating its own innovations. Constraints that African economies face are investment opportunities. Despite the significant challenges the region faces, this book presents evidence of leapfrogging experi- Challenges are what motivates entrepreneurs to find ences in Africa. They demonstrate that with the right solutions. African governments need to create the 107 108 Leapfrogging: The key to Africa’s Development? right conditions to encourage innovators to overcome mathematics, is fundamental for using, adapting, constraints, and for the private sector to provide sup- and triggering technological innovation that enables port and the necessary resources. The benefits for leapfrogging. Of all the sectors, education has unique the private sector can be significant. In just a decade, attributes that make it least conducive to attract private M-PESA has become Safaricom’s largest driver of investment on the scale needed. Governments should revenue growth, contributing to over a quarter of prioritize public spending for the education sector, its fiscal year 2017 revenue, with the mobile money given the potentially high returns it can generate as a service generating K Sh 55 billion (US$103 million).1 lever for transformational leapfrogging. Having the right regulatory environment is R&D is key for adapting technology to local crucial for enabling leapfrogging. contexts. A flexible regulatory environment enables innovation R&D is an important determinant of absorptive capac- by allowing new business models to be tested—regu- ity and technological progress. It enables technology to lation can then scale with the innovation. This was be adapted to local environments for rapid adoption. the case with M-PESA, where other than requiring Part of Africa’s lack of leapfrogging can be explained users to register, the Central Bank of Kenya imposed by low R&D expenditure: the lowest of any developing few restrictions during the mobile money service’s region and almost four times less than the world aver- early deployment. Flexibility is also required to create age. This report has identified several promising areas investment channels, such as delinking generation, meriting research. R&D is particularly essential for transmission, and distribution and opening energy two sectors that have not experienced significant leap- markets to private participation. frogging, agriculture and education. Characterized by unique agroecology and small shareholdings, Africa’s agriculture sector has remained largely unaffected by Innovation must scale to trigger the Green Revolution. R&D is needed to investigate leapfrogging. how to increase productivity and sustainability, given these distinctive characteristics. R&D in itself is a good Technological innovation must be accessible in cost, investment that should be prioritized. A study from the skills required to use it, availability, and meet- India finds that investment in research, education, and ing a widespread need. Mobile money scaled rapidly roads was the most effective for agricultural growth because it filled the gap in formal banking, was simple and reducing poverty.2 to use, worked on inexpensive basic cell phones, and answered the need for a cheap and safe way for urban In education, outcomes remain constrained, meriting Kenyans to transfer money to family in rural areas. research into causes and solutions. Several educational technologies are being piloted across the continent. However, few have found scale despite the promise of Public investment should prioritize skill some, such as online learning, which could help alle- acquisition. viate shortages of teachers. R&D is needed to explore the adaptive potential of these technologies, including Education, especially foundational skills acquisi- impact evaluations, to determine if and how they can tion as well as science, technology, engineering, and be scaled for Africa. Information and Communications Technologies 109 Endnotes 1 Safaricom. 2017. Annual Report and Financial 2 Fan, Shenggen, Ashok Gulati, and Sukhadeo Statements 2017. https://www.safaricom.co.ke/ Thorat. 2008. “Investment, Subsidies, and pro-Poor images/Downloads/Resources_Downloads/ Growth in Rural India.” Agricultural Economics 39 Safaricom_2017_Annual_Report.pdf. (2): 163–70.